Nvidia (NVDA) and other US chip stocks fell on Friday as a pair of headlines put the sector on track for a losing week after Nvidia’s high-profile earnings report on Wednesday garnered a tepid reaction from investors.
Nvidia shares dropped more than 3% Friday and were on pace to lose 2% for the week.
Friday’s drop came after server maker Dell (DELL), a customer of those chipmakers, gave a third quarter earnings outlook below Wall Street’s estimates, while a new report said Chinese tech giant Alibaba (BABA) is testing a new chip to compete with Nvidia and AMD in China.
The Wall Street Journal reported Alibaba is testing a new chip for AI inferencing and that a slew of highlighted Chinese companies are developing substitutes for Nvidia’s H20 China chip. Nvidia said Wednesday that it made no sales of H20 chips into China in its most recent quarter and is still awaiting clarity on new regulations that would require it to send 15% of revenue from those sales to the US government.
Read more about Nvidia’s stock moves and today’s market action.
Late Thursday, Dell guided to third quarter earnings per share of $2.45, below the $2.55 expected, per LSEG estimates cited by CNBC. Dell accounts for over 2% of Nvidia’s revenue on an annualized basis, according to Bloomberg estimates.
The server maker also accounts for roughly 1% of Broadcom’s (AVGO) revenue, 3.6% of Advanced Micro Devices’ (AMD) revenue, and 3.7% of Micron’s (MU) revenue, per Bloomberg data. Broadcom and AMD stock both fell over 3% on Friday.
The PHLX Semiconductor Index (^SOX) fell over 2.5% on Friday and was on pace to drop 1% for the week.
The moves follow Nvidia’s earnings report on Wednesday, which showed its data center business underperformed Wall Street’s expectations in its latest quarter, while its future in China remains clouded by geopolitical uncertainty.
Nvidia’s increasing reliance on a small handful of customers also raised concerns over the heavily concentrated AI market. Though Nvidia’s fellow chip stocks recorded gains Thursday as the Nasdaq neared a fresh record, Nvidia shares fell nearly 1%.
China has pressured domestic companies not to use Nvidia’s AI chips since Trump and the chipmaker outlined a deal for it to send the US government 15% of its revenue from China chip sales in exchange for export licenses. That revenue-sharing agreement has not been finalized, but Nvidia has been granted licenses to sell some of its H20 chips to China following a surprise ban in April.
CEO Jensen Huang stressed the importance of the Chinese AI market, which he sees as a rapidly growing $50 billion market opportunity, on the company’s earnings call and in an interview with Yahoo Finance on Wednesday.
