All of Wall Street was waiting for Nvidia’s earnings report with bated breath, and the dust has only just started to dissipate more than a week after the tech company reported earnings.
Nvidia released its latest earnings report on August 28, and its stock has tumbled — dragging some tech ETFs down with it due to the size of their positions in the stock. Technology ETFs are still feeling the impact following Nvidia’s earnings release over a week later.
More recently, Broadcom’s earnings report on September 5 beat revenue expectations for the quarter but ran into problems elsewhere.
Nvidia Disappoints High Expectations
Nvidia essentially priced for perfection going into its earnings report, so it shouldn’t have been a surprise that the company disappointed. The company smashed estimates and raised its guidance, but Wall Street appears to have been disappointed that the increase wasn’t as much as hoped.
Overall, Nvidia’s earnings report was stellar with 68 cents per share in adjusted earnings and $30.04 billion in sales, versus the 64 cents and $28.7 billion that was expected expected. The company also guided for $32.5 billion in revenue for the current quarter, versus expectations of $31.7 billion.
Unfortunately, decelerating growth turned out to be a problem for Nvidia. Overall revenue grew 122% year over year, a meaningful deceleration from the previous three quarters, which saw revenues climb more than 200%.
Another potential issue is the company’s gross margin. For the July quarter, Nvidia’s gross margin came in at 75.1%, down from 78.4% in the previous quarter. The chipmaker guided for a gross margin of 74.4% in the current quarter. These two issues may have been enough to spook investors and trigger the recent selloff.
Following the earnings release, Nvidia shares plummeted, wiping a record $279 billion off the chip maker’s market capitalization. Over just three trading sessions, Nvidia stock tumbled 14% following the report.
Some of the top technology ETFs that contain Nvidia include the VanEck Semiconductor ETF (SMH ), the Strive U.S. Semiconductor ETF (SHOC ), and the newly launched VanEck Fabless Semiconductor ETF (SMHX).
Broadcom Earnings
Like Nvidia, Broadcom has been priced for perfection this year, soaring 38% year to date through pre-market trading on September 6. As a result, the company’s top- and bottom-line beats weren’t enough to propel the chip maker’s stock higher.
Broadcom posted earnings of $1.24 per share on $13.1 billion in net revenue, versus expectations of $1.20 per share on $13 billion in revenue. However, the company swung to a net loss of $1.88 billion or 40 cents per share from net income of $6.12 billion or $1.24 per share in the year-ago quarter.
Management said a one-time tax provision of $4.5 billion in connection with the trade of intellectual property rights from one company division to another based in the U.S. as part of its supply chain management was the cause for the net loss.
The big problem that sent Broadcom shares lower in pre-market trades on Friday was that the company’s fourth-quarter guidance came up short of expectations. The chipmaker guided for $14 billion in sales, versus revenue expectations of $14.04 billion to $14.11 billion.
Three ETFs that offer the greatest exposure to Broadcom by weight include SMHX, the Invesco PHLX Semiconductor ETF (SOXQ ), and the iShares Semiconductor ETF (SOXX ).
Other Key Tech Earnings
Looking back a bit, Cisco Systems also beat expectations, coming in at 87 cents per share in adjusted earnings on $13.6 billion in revenue, versus expectations of 85 cents on $13.5 billion in sales. The stock soared from about $45 per share on August 13, the day before the earnings release, to around $50 on August 20.
The technology ETFs that have highest exposures to Cisco Systems include the First Trust NASDAQ Cybersecurity ETF (CIBR ), the Amplify Cybersecurity ETF (HACK ), and the First Trust Dow Jones Internet Index Fund (FDN ).
Palo Alto Networks posted adjusted earnings of $1.51 per share on $2.2 billion in revenue, versus expectations of $1.41 per share on $2.16 billion in sales. However, like Nvidia, Palo Alto stock dropped following the release, falling from about $368 on August 19 to $349 on August 21.
ETFs with high exposure to the company include CIBR, the Global X Cybersecurity ETF (BUG ) and HACK.
How Tech ETFs Have Responded to Earnings Season
Some of the ETFs containing Nvidia have sizable allocations to the chipmaker, which are weighing on their returns. For example, SHOC has a 27.2% allocation to Nvidia, and its price slipped from around $47 on Aug. 29 to $43 at the close of business on Sept. 5. SHOC is down 14% over the last three months, thanks in part to Nvidia, which is off 11%. The company has a 32.58% weight in SHOC.
Similarly, SMH has a 20.7% allocation to Nvidia and is down 11% over the last three months. Its price has fallen from $243 on Aug. 29 to $224 at the close of business on Sept. 5. Nvidia has a 20.81% weight in SMH.
If Broadcom stock continues to fall on the disappointing outlook, we could see ETFs with heavy weightings in Broadcom suffer similar fates. However, none have the extreme weightings seen for Nvidia, with the largest weighting to Broadcom seen in SMHX at a little over 14%.
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