Nvidia Stock Falls Again Ahead of Earnings. Why the Market Is Nervous.

Nvidia CEO Jensen Huang has built the company into the leading provider of artificial-intelligence chips. (Photo by I-HWA CHENG/AFP via Getty Images)

Key Points

• Nvidia stock dropped 2.2% to $182.56 in early trading Tuesday, following a 1.9% decline on Monday.
• Rothschild & Co. Redburn downgraded Microsoft and Amazon.com, citing less lucrative economics for generative AI.
• Nvidia is expected to report adjusted earnings of $1.23 per share on $54.83 billion in revenue for the October quarter.

Nvidia stock was dropping again early on Tuesday as market sentiment soured on technology stocks ahead of the chip maker’s earnings.

Caution about the technology sector looked to be continuing into Tuesday. Microsoft and Amazon.com —both significant Nvidia customers—were downgraded by Rothschild & Co. Redburn analysts, who warned the economics of generative AI weren’t as lucrative as had been assumed.

Nvidia stock was down 2.3% at $182.40 in early trading. The stock fell 1.9% on Monday amid a wider market selloff.

However, Nvidia’s losses were pared slightly after it said Tuesday that it would invest up to $10 billion in AI start-up Anthropic.

That’s part of a wider arrangement which will see Anthropic also receive up to $5 billion in investment from Microsoft and scale its Claude AI model on Microsoft’s cloud-computing platform, powered by Nvidia chips.

“Anthropic and Nvidia will collaborate on design and engineering, with the goal of optimizing Anthropic models for the best possible performance, efficiency and TCO [total cost of ownership], and optimizing future Nvidia architectures for Anthropic workloads,” the companies said in a joint statement.

Anthropic currently uses a mix of Nvidia processors and in-house chips from its financial backers Amazon and Google-parent Alphabet .

Among other chip makers, Advanced Micro Devices was down 5.7% and Broadcom was falling 1.5% in morning trading. The VanEck Semiconductor ETF declined 2.8%, and the S&P 500 was off 1.1%.

The AI selloff is raising the stakes for Nvidia’s own earnings report Wednesday.

Nvidia is expected to report adjusted earnings of $1.23 a share on revenue of $54.83 billion for the October quarter on Wednesday after the market close, according to a FactSet poll of analysts.

“The stock now has a slightly lower bar to clear post-earnings. We expect Nvidia to exceed estimates and provide future earnings and revenue guidance that is higher than investors expect” said James Demmert, chief investment officer at Main Street Research.

Apart from the numbers, investors might also be listening for comments on the potential threat from rival semiconductor companies and the debate over the time scale of chip depreciation.

“In my opinion, the most important thing will be whether Nvidia sees any changes in the competitive dynamics in the market for AI GPUs. Of course, Nvidia has benefited from first mover advantage for the past few years, but I do see more competition coming in on the horizon,” wrote Dave Sekera, chief U.S. market strategist at Morningstar.

Write to Adam Clark at adam.clark@barrons.com