Chip Sector Stumbles as Margin Concerns Overshadow Strong Fundamentals

A wave of selling pressure swept through the semiconductor industry on Friday, with sector leader Nvidia seeing its shares decline by 3.3% to close at $175.02. This pullback, which leaves the stock trading 17% below its October peak, was triggered not by Nvidia’s own results but by cautious commentary from a key competitor.

Broadcom’s Warning Sparks Sell-Off

The catalyst for the sector-wide weakness was earnings released by Broadcom on Thursday evening. While the company posted impressive figures, including revenue of $18.02 billion and a 74% surge in AI chip sales, it was the forward-looking guidance that unsettled investors. Chief Financial Officer Kirsten Spears warned of lower gross margins ahead, citing higher costs associated with building AI chip systems. Broadcom’s stock subsequently plummeted 11%.

This warning ignited broader concerns that even the most successful chipmakers could face profitability headwinds, potentially impacting the entire industry. Bernstein analyst Stacy Rasgon described a wave of “AI anxiety” permeating the market. The sell-off extended beyond Nvidia, affecting other names like AMD and CoreWeave.

Nvidia’s Robust Financial Position Remains Intact

Despite the market’s reaction, Nvidia’s underlying business fundamentals appear unchanged and exceptionally strong. In November, the company reported record third-quarter fiscal 2026 revenue of $57.0 billion, representing a 62% year-over-year increase. Its data center segment was the primary driver, contributing $51.2 billion—a jump of 66% from the prior year.

CEO Jensen Huang characterized demand as “exceptional,” noting that “Blackwell sales are through the roof” and cloud GPUs are sold out. Management’s forecast for the fourth quarter points to revenue of approximately $65 billion, which would equate to growth of about 66%. Furthermore, Nvidia’s order backlog for 2025 and 2026 stands at a staggering $500 billion.

Should investors sell immediately? Or is it worth buying Nvidia?

China Export Approval Opens New Revenue Stream

In a significant development, the U.S. government approved the export of Nvidia’s H200 chips to China on December 8, subject to a 25% fee payable to U.S. authorities. Wells Fargo analyst Aaron Rakers estimates this regulatory shift could generate an additional $25 to $30 billion in annual revenue for Nvidia. The H200 chip is reportedly six times more powerful than the H20 model, which was previously the most advanced chip approved for export to China.

Analyst sentiment remains overwhelmingly positive in light of these fundamentals. Of 41 analyst ratings covered, 39 recommend “Buy,” with an average price target of $258—implying a 47% upside from current levels. Bernstein maintains one of the more bullish targets at $275 per share.

Valuation and Sector Outlook

Nvidia currently trades at 29 times expected earnings, a valuation that sits notably below the tech sector average of 46. The company commands a market capitalization of $4.3 trillion and, according to estimates from IoT Analytics, holds a dominant 92% market share in data center GPUs.

Investors will be watching closely when Nvidia reports fourth-quarter results on February 25, 2026, for signs that its transition to the Blackwell architecture is progressing without eroding margins. The broader market environment remains supportive, with hyperscaler investments in AI infrastructure projected to rise to $405 billion in 2025, a trend that continues to underpin Nvidia’s central position in the ecosystem.