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Nvidia shares dropped 9.5%, wiping out $279 billion in market value, as investor concerns grow over AI investments. The broader chip index also faced its biggest decline since 2020.
Key Points
- Nvidia shares dropped 9.5%, resulting in a $279 billion loss in market value, marking the largest single-day decline for a U.S. company.
- Investor optimism around AI technology is cooling, leading to a broader selloff in tech stocks.
- The PHLX chip index fell 7.75%, its worst single-day drop since 2020.
- Concerns about the return on AI investments have impacted major companies like Nvidia, Intel, Microsoft, and Alphabet.
- Nvidia’s valuation has dropped, now trading at 34 times expected earnings, down from over 40 in June.
Nvidia, a leading force in artificial intelligence (AI) technology, experienced a historic one-day plunge on Tuesday as its shares tumbled 9.5%, erasing $279 billion from its market capitalization. This marked the deepest single-day market value loss for a U.S. company, as investor sentiment around AI began to show signs of cooling.
The sharp decline in Nvidia’s stock was a significant indicator that the intense optimism surrounding AI technology, which has driven much of this year’s stock market gains, may be starting to wane. The broader PHLX semiconductor index also took a hit, falling 7.75%—its largest drop since 2020—reflecting the broader market’s concerns.
Nvidia’s steep losses follow a quarterly forecast released last Wednesday that failed to meet the sky-high expectations of investors. This led to a broader market selloff, exacerbated by tepid economic data that further fueled investor caution. “Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed,” noted Todd Sohn, an ETF strategist at Strategas Securities.
The market’s jitters were not limited to Nvidia. Intel, another major player in the semiconductor industry, saw its shares fall nearly 9% after reports surfaced that its CEO, Pat Gelsinger, was expected to propose significant cuts and a revamp of capital spending. Other tech giants like Microsoft and Alphabet have also seen their shares dip recently, following quarterly reports that raised doubts about the immediate payoffs from heavy AI investments.
BlackRock strategists echoed these concerns, pointing out in a client note that there is growing skepticism about whether the revenues from AI investments will eventually justify the current wave of capital spending. “When assessing AI capex by individual companies, investors must consider if they are making the best use of their balance sheets and capital,” the note stated.
Nvidia, which had nearly tripled its stock value by July, still remains up 118% year-to-date despite recent losses. However, the company’s valuation has adjusted, now trading at 34 times expected earnings, down from over 40 in June, bringing it in line with its two-year average.
The broader market also saw declines, with the Nasdaq dropping 3.3% and the S&P 500 falling 2.1% on Tuesday. Investors are closely watching for further economic data, particularly in the labor market, which could influence future market movements. The Federal Reserve’s upcoming policy announcement on September 18 is also in focus, with a majority of investors expecting a 25 basis point cut in interest rates, although expectations for a 50 basis point cut have risen following Tuesday’s soft economic data.
Nvidia’s record-breaking single-day loss in market value exceeded the $232 billion decline suffered by Meta Platforms on February 3, 2022, after the social media giant issued a bleak forecast. The impact of Tuesday’s market activity underscores the growing caution among investors as they navigate the evolving landscape of AI technology and its financial implications.
