NEW YORK, Feb 20 (Reuters) - U.S. stocks were lower on Tuesday, with the Nasdaq showing the heaviest declines as chipmaker Nvidia stumbled ahead of its highly awaited earnings report, while gains in Walmart kept losses on the Dow Industrials in check.
Shares of the chip designer Nvidia (NVDA.O), opens new tab tumbled nearly 6%, on track for its biggest one-day percentage drop since May, while the broader Philadelphia semiconductor index (.SOX), opens new tab shed 2.5% as other chip stocks also followed.
Investors are concerned Nvidia's quarterly results, expected after markets close on Wednesday, will justify its expensive valuation, currently at a forward price to earnings ratio of just over 32, and continue to fuel the buying frenzy around artificial intelligence (AI) related stocks.
AI-fueled bets have helped Nvidia become the third-most valuable U.S. company and recently supplant Tesla (TSLA.O), opens new tab as Wall Street's most traded stock.
"It is priced to perfection, no matter what they say they are probably going to take money out of it," said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.
"No matter what they say, the traders are going to lock in profits, the asset managers are going to peel off a piece of their core position and lock in some profits and some of that is even happening today ahead of the number tomorrow.
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Shares in Super Micro Computer (SMCI.O), opens new tab, which has surged in recent weeks as the latest stock seen to benefit from AI, dropped more than 7%, after closing down nearly 20% on Friday to snap a nine-session streak of gains. The Philadelphia semiconductor index was down more than 2%.
The Dow Jones Industrial Average (.DJI), opens new tab lost 85.43 points, or 0.22%, at 38,542.56, the S&P 500 (.SPX), opens new tab was down 37.16 points, or 0.74%, at 4,968.41, and the Nasdaq Composite (.IXIC), opens new tab fell 204.52 points, or 1.3%, at 15,571.14.
Walmart (WMT.N), opens new tab hit a record high and was last up 3.9% after the U.S. retail giant forecast fiscal 2025 sales largely above Wall Street expectations and raised its annual dividend by 9%.
The S&P 500 consumer staples index (.SPLRCS), opens new tab, which includes Walmart, rose 1.2% as the best performing of the 11 major S&P sectors, while information technology (.SPLRCT), opens new tab was the weakest with a drop of 1.8%.
Shares of fellow Dow component Home Depot alternated between modest gains and losses and was last up 0.4% after the home improvement retailer forecast full-year results below analysts' estimates.
A weeks-long rally on Wall Street stalled last week, as hotter-than-expected U.S. inflation data pushed back market expectations for the timing of a rate cut from the Federal Reserve.
The rate cut is expected in June, according to a slim majority of economists polled by Reuters, who also flagged risk of a further delay in the first cut.
Investors are also awaiting the release of minutes from the Fed's latest policy meeting as well as remarks from a slew of central bank officials later this week.
Smart-TV maker Vizio (VZIO.N), opens new tab jumped 16.5% after Walmart said it would buy the company for $2.3 billion.
Discover Financial Services (DFS.N), opens new tab surged 16.4% on Warren Buffett-backed consumer bank Capital One's plans to acquire the U.S. credit card issuer in a $35.3 billion deal. Capital One shares edged up 0.2%.
Reporting by Chuck Mikolajczak; Editing by Aurora Ellis
