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Nvidia's stock rally sputters ahead of quarterly report

Credit: REUTERS/ANN WANG

Feb 20 (Reuters) - A scorching rally in Nvidia's shares this year came to a halt on Tuesday as investors worried if the high-flying chip designer's quarterly results would justify its towering valuation.

The stock fell 5.3% to $687.91. If losses hold, it could be the biggest percentage drop in more than eight months.

Nvidia has been at the heart of the frenzy around artificial intelligence (AI). A more than 40% surge in its stock this year helped it replace Alphabet GOOGL.O as the third most valuable U.S. company, behind Microsoft MSFT.O and Apple AAPL.O.

The market capitalization of Nvidia was $1.79 trillion on Friday.

"The market is maybe a little bit hesitant whether they (Nvidia) can deliver a strong enough guidance to reinvigorate the market even higher," said Frank Lee, head of technology research at HSBC.

The company will report quarterly results on Feb. 21. Analysts expect earnings of $4.56 a share and revenue to rise to $20.378 billion from $6.05 billion a year earlier, according to LSEG estimates.

Still, Nvidia's eye-popping run this year that pushed it to new peaks and powered gains in U.S. stock markets could make the stock vulnerable if earnings are less than stunning.

"You can't come out and simply meet or slightly beat for the stock to go higher, Nvidia's going to need to blow it away," said Dennis Dick, a trader at Triple D Trading.

Nvidia options are pricing a swing of about 11% in either direction following results, according to data from options analytics service ORATS.

Other AI-focused stocks such as Super Micro Computer SMCI.O fell 11.6% and Arm Holdings ARM.O dropped 7.3%.

Advanced Micro Devices AMD.O was down nearly 6%, having recorded double-digit gains on a year-to-date basis.

Nvidia's shares are trading at 32 times its forward earnings estimates compared with the industry median of 25.4.

(Reporting by Sruthi Shankar in Bengaluru, additional reporting by Arsheeya Singh Bajwa and Bansari Mayur Kamdar; Editing by Shinjini Ganguli)

((sruthi.shankar@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 6182 2787;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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