Shares of Nvidia and other major technology firms experienced a decline late on Wednesday, signaling a troubling trend for investors who anticipated that a robust forecast from the leading AI chip manufacturer would drive further growth among Wall Street's top companies.

Following Nvidia's quarterly earnings announcement, Nasdaq futures dropped approximately 1%, indicating that traders foresee a downturn in tech stocks on Thursday.

Nvidia's stock fell nearly 7%, resulting in a loss of $200 billion in market capitalization after the company projected third-quarter gross margins that might fall short of market expectations, while its revenue figures were mostly in line with predictions. Additionally, several other AI-focused companies collectively lost around $100 billion in value.

Broadcom and Advanced Micro Devices each saw their shares decline by about 2%, while Microsoft and Amazon experienced nearly 1% drops.

Should Nvidia's late-day decline persist into Thursday, it would fall significantly short of the 11% price fluctuation anticipated by the options market, as reported by options analytics firm ORATS.

Nvidia's remarkable demand for its AI chips has allowed the company to consistently surpass consensus analyst estimates over multiple quarters, leading investors to expect increasingly higher margins above forecasts.

However, Nvidia's cautious outlook overshadowed its strong performance in second-quarter revenue and adjusted earnings, along with the announcement of a $50 billion share repurchase program.

"They faced challenges, but this was simply one of those instances where expectations were exceedingly high. I doubt they could have achieved a satisfactory outcome that would please everyone," remarked JJ Kinahan, CEO of IG North America and president of online brokerage Tastytrade.

The tepid reaction to Nvidia's earnings report may influence market sentiment as we approach a historically turbulent period of the year. Since World War II, the S&P 500 has averaged a decline of 0.8% in September, marking it as the worst-performing month, according to CFRA data.

Investors are also keenly awaiting next week's U.S. employment report for indications of whether the labor market's earlier weakness, which unsettled stocks in early August, has subsided.

The enthusiasm surrounding AI technology, partly driven by Nvidia's remarkable growth, has propelled gains on Wall Street over the past year.

Nevertheless, confidence in this rally has diminished in recent weeks, following an earnings season where investors reacted negatively to tech companies whose results did not meet high expectations.

Concerns have also arisen regarding the rising expenditures of major players like Microsoft and Alphabet in their quest to lead in the burgeoning AI sector. Both Microsoft and Alphabet's stocks have declined since their earnings reports last month.

Nvidia has projected a revenue of $32.5 billion, with a margin of plus or minus 2%, for its fiscal third quarter, surpassing analysts' average estimate of $31.8 billion, as per LSEG data. This revenue forecast suggests an 80% increase compared to the same quarter last year.

The company, based in Santa Clara, California, anticipates an adjusted gross margin of 75%, with a margin of plus or minus 50 basis points, for the third quarter. Analysts, on average, expect a gross margin of 75.5%, according to LSEG data.

Ahead of its earnings report, Nvidia's stock fell by 2.1% during Wednesday's trading session. However, it has surged approximately 150% in 2024, making it the standout performer in Wall Street's AI rally.

Prior to its quarterly report, Nvidia's stock was priced at 36 times its earnings, which is relatively low compared to its five-year average of 41. In contrast, the S&P 500 is currently trading at 21 times projected earnings, above its five-year average of 18.