(Reuters) -Nvidia dragged AI-linked chip stocks lower on Thursday after its forecasts disappointed investors who had been hoping they would fuel fresh gains in the companies that have been some of Wall Street's best performers this year.

Nvidia dropped 4.5% in premarket trading and was on track to lose about $150 billion in stock market value after it forecast third-quarter gross margins that could miss market estimates and revenue that was largely in line.

Shares of other chip firms Broadcom, Advanced Micro Devices, Arm and Micron were down between 1.6% and 2%. U.S.-listed shares of TSMC - Nvidia's chip manufacturing partner - were also 2% lower.

TSMC's shares on the Taiwan bourse also closed lower as Asian tech stocks tracked weakness in Nvidia, with South Korea's KOSPI index falling to a two-week low. [.T] [.KS]

The decline in Nvidia was so far well short of the 11% price swing the options market had priced for the shares, according to data from options analytics firm ORATS.

Surging demand for its AI chips helped Nvidia crush consensus analyst estimates for several quarters, a trend that led investors to expect the company to exceed forecasts by higher and higher margins.

Nvidia's soft forecasts overshadowed a beat on second-quarter revenue and adjusted earnings as well as the unveiling of a $50 billion share buyback.

"They beat but this was just one of those situations where expectations were so high. I don't know that they could have had a good enough number for people to be happy," said JJ Kinahan, CEO of IG North America and president of online broker Tastytrade.

The lackluster response to Nvidia's earnings report could help set the tone for market sentiment heading into what is historically a volatile time of the year. The S&P 500 has fallen in September by an average of 0.8% since World War Two, the worst performance of any month, according to CFRA data.

Investors are also watching next week's U.S. employment report for signs on whether the labor market weakness that roiled stocks in early August has dissipated.

Optimism about AI technology, in part due to Nvidia's explosive growth, has fueled gains on Wall Street over the past year.

However, confidence in that rally has wavered in recent weeks following an earnings season that saw investors punish shares of tech companies whose results failed to justify rich valuations.

Investors have also become concerned about increases in already hefty spending by Microsoft, Alphabet and other major players in the race to dominate emerging AI technology. Microsoft and Alphabet's stocks remain down since their reports last month.

Nvidia forecast revenue of $32.5 billion, plus or minus 2%, for its fiscal third quarter, compared with analysts' average estimate of $31.8 billion, according to LSEG data. That revenue forecast implies 80% growth from the year-ago quarter.

The Santa Clara, California-based company expects adjusted gross margin of 75%, plus or minus 50 basis points, in the third quarter. Analysts on average forecast gross margin to be 75.5%, according to LSEG data. 

Nvidia's stock dropped 2.1% in Wednesday's session, ahead of its report. It remains up about 150% so far in 2024, making it the biggest winner in Wall Street's AI rally.

Nvidia's stock was valued at 36 times earnings ahead of its quarterly report, inexpensive compared to its average of 41 over the past five years. The S&P 500 is trading at 21 times expected earnings, compared to a five-year average of 18.

(Reporting by Noel Randewich in San Francisco; Additional reporting by Saqib Ahmed in New York, Aditya Soni and Kanchana Chakravarty in Bengaluru; Editing by Ira Iosebashvili, Lisa Shumaker, Mark Potter and Saumyadeb Chakrabarty)