By Noel Randewich and Saqib Iqbal Ahmed

(Reuters) – Shares of Nvidia (NASDAQ:) and other technology heavyweights fell late Wednesday, a discouraging sign for investors who had bet that strong forecasts from the dominant AI chip seller would lead to fresh gains in Wall Street’s most valuable companies.

Nasdaq futures fell about 1% following the release of Nvidia’s quarterly report, suggesting traders expect technology stocks to lose ground on Thursday.

Nvidia lost nearly 7% and $200 billion in market value after the company forecast third-quarter gross margins that could be below market estimates and revenue that was largely in line. A handful of other AI-related companies lost a total of about $100 billion in value.

Shares of Broadcom (NASDAQ:) and Advanced Micro Devices (NASDAQ:) each lost about 2%. Shares of Microsoft (NASDAQ:) and Amazon (NASDAQ:) each lost nearly 1%.

If the late decline in Nvidia shares from Wednesday continues into Thursday, it would be well below the 11 percent price fluctuation that the options market had priced in for the shares, according to data from options analysis firm ORATS.

Thanks to rising demand for AI chips, Nvidia beat analyst consensus estimates for several quarters. This trend led investors to expect the company to beat its forecasts more and more.

Nvidia’s cautious forecasts overshadowed its second-quarter revenue and adjusted earnings beats and the announcement of a $50 billion share buyback.

“They exceeded expectations, but it was just one of those situations where expectations were so high. I don’t know if their numbers would have been good enough to satisfy people,” said JJ Kinahan, CEO of IG North America and president of online broker Tastytrade.

The lackluster reaction to Nvidia’s quarterly report may help determine market sentiment during this historically volatile time of year. Shares have fallen an average of 0.8 percent in September since World War II, the worst month of any month, according to CFRA data.

Investors are also closely watching next week’s U.S. jobs report to find out whether the labor market weakness that rattled stock prices in early August is over.

Optimism about AI technology, fueled in part by Nvidia’s explosive growth, has fueled stock gains on Wall Street over the past year.

However, confidence in that rally has wavered in recent weeks after investors punished shares of technology companies during the earnings season whose results did not justify high valuations.

Investors are also concerned about increased spending by Microsoft, Alphabet (NASDAQ:) and other major players in the race for dominance in emerging AI technology. Shares of Microsoft and Alphabet have remained in the red since their reports last month.

According to LSEG data, Nvidia forecast third-quarter revenue of $32.5 billion, up 2 percent. The average analyst estimate was $31.8 billion. This revenue forecast represents growth of 80 percent over the same quarter last year.

The Santa Clara, California-based company expects third-quarter adjusted gross margin of 75 percent, plus or minus 50 basis points. Analysts on average are forecasting a gross margin of 75.5 percent, according to LSEG data.

Nvidia shares fell 2.1% on Wednesday ahead of the report’s release, but are still up about 150% so far in 2024, making them the biggest winner of Wall Street’s AI rally.

Nvidia stock was valued at 36 times forward earnings before the release of its quarterly report, which compares favorably with the past five-year average of 41. The S&P 500 trades at 21 times forward earnings, compared with a five-year average of 18.