Shares of Nvidia (NVDA 1.72%) were down 6.3% as of 10:28 a.m. ET on Thursday. For context, the S&P 500 index was down 2.4%.
Following a strong earnings report from graphics chip rival Advanced Micro Devices earlier this week, investors are trying to get a feel for the near-term demand trend in the data center and gaming markets, which are the two largest sources of revenue for Nvidia.
Investors rely on the results from companies in the same industry to get an early read on what to expect ahead of another company's upcoming earnings results. AMD's bullish news on Tuesday gave investors reason to believe that the current demand trends in the semiconductor industry will contribute to another quarter of robust growth for Nvidia.
AMD raised its full-year guidance citing "very strong demand" in servers and video game consoles. Nvidia's data center segment has been off the charts over the last few years and contributed almost half of total revenue in the fiscal fourth quarter (which ended in January).
While AMD reported strong growth in gaming, investors might be nervous about AMD's commentary on the health of the PC market, where Nvidia is the leading supplier of graphics chips. AMD CEO Dr. Lisa Su said they have taken "a bit more of a conservative perspective on the PC market" with respect to guidance. That suggests there could be weakness brewing for Nvidia's gaming business on the horizon.
Earlier this week, one analyst warned there could be a deceleration in gaming revenue for Nvidia this year. A strong start to the year for both AMD and Nvidia doesn't mean there couldn't be some growth headwinds in upcoming quarters.
Investors are also weighing macroeconomic headwinds, such as higher interest rates, inflation, and the potential for less appetite by data center operators and gamers to buy pricey graphics chips. Investors will get Nvidia's take on the near-term demand trends when it reports earnings on Wednesday, May 25.