Shares of supplier TSMC, chip equipment maker ASML fall ahead of Nvidia’s earnings report

Shares of two critical chip firms TSMC and ASML fell ahead of U.S.-based artificial intelligence chip designer Nvidia’s earnings report.

Nvidia is set to report its fourth-quarter earnings after the U.S. market closes Wednesday. Wall Street will parse commentary from Nvidia CEO Jensen Huang for an indication of how long the company’s massive growth can last.

Shares of Taiwan Semiconductor Manufacturing Company dropped more than 1% on Wednesday morning. TSMC, which is the world’s largest producer of advanced processors, manufactures chips for companies such as Nvidia and Apple.

Nasdaq-listed shares of Dutch semiconductor equipment maker ASML closed 2.09% lower on Tuesday. ASML supplies the likes of TSMC with machines that are critical to manufacturing chips. That includes the extreme ultraviolet lithography machine which is used to make the most advanced chips in the world, like the ones that go into an Apple iPhone.

Other Taiwanese semiconductor companies United Microelectronics Corp. and MediaTek slipped 0.91% and 0.31% respectively on Wednesday.

Nvidia’s shares have more than tripled in the last year as demand for its graphics processing units skyrocketed thanks to the AI boom.

ChatGPT, a generative AI chatbot which went viral in November 2022 for its ability to generate human-like responses on users’ prompts, is trained and run on thousands of Nvidia’s GPUs.

Nvidia’s shares tumbled 4.35% on Tuesday, leading a broader decline in U.S. tech stocks. Arm Holdings, the SoftBank-owned U.K. chip designer rival, closed 5.12% lower.

Morgan Stanley said in a Tuesday report that Nvidia “should see a strong quarter in line with recent increases to expectations” and that “focus should shift to new products.”

“With the stock up over 50% [year-to-date] already, we aren’t looking for an immediate strong reaction to positive results, but we don’t expect a selloff either. Our investor conversations are mostly with clients constructive on the stock but worried about near term expectations being too high, which usually creates a benign setup,” said Morgan Stanley analysts.