Nvidia experienced a record-breaking $279 billion loss in market value on Tuesday as its shares dropped by 9.5%, marking the largest single-day decline ever for a U.S. company. The downturn in Nvidia’s stock reflects investors’ growing caution toward artificial intelligence, which had previously been a major driver of stock market gains this year. This sentiment shift occurred amid a broad selloff on Wall Street following lukewarm economic data, leading to concerns over the sustainability of AI-driven market enthusiasm.
The PHLX semiconductor index plunged by 7.75%, recording its most significant one-day drop since 2020. Nvidia’s recent forecast, which failed to meet investors’ high expectations, added to the jitters surrounding AI investments. According to Todd Sohn, an ETF strategist at Strategas Securities, the heavy allocation of capital to technology and semiconductor sectors over the past year has skewed the trade, suggesting a potential correction.
Other major tech firms were also affected, with Intel’s stock falling nearly 9% after reports emerged that CEO Pat Gelsinger and top executives are planning to cut unnecessary business units and revise capital expenditures. Meanwhile, shares of Microsoft and Alphabet have been under pressure following their quarterly reports in July, reflecting broader concerns about the long-term returns on substantial AI investments.
BlackRock strategists, in a client note, highlighted the growing skepticism, pointing out that recent research has questioned whether the revenues from AI will ultimately justify the wave of capital spending. They emphasized that investors should closely evaluate the effectiveness of capital deployment for AI by individual companies.
Despite the setback, Nvidia’s stock remains up 118% for the year, following a significant rally that saw it nearly triple in 2024. Broader market declines accompanied the drop in chip stocks, with the Nasdaq falling 3.3% and the S&P 500 down 2.1%. The Federal Reserve’s upcoming interest rate decision, with most investors anticipating a 25 basis point cut, is adding another layer of uncertainty to the market.
Economic data pointing to continued softness in the manufacturing sector has prompted some investors to raise their expectations of a more aggressive 50 basis point rate cut. Upcoming labor market data, culminating in Friday’s government payrolls report, is expected to provide further insights into economic conditions. Steve Sosnick, a market strategist at Interactive Brokers, expressed concerns over the potential impact of seasonal factors on job numbers.
Tuesday’s decline in Nvidia’s market value surpassed the previous record one-day loss of $232 billion experienced by Meta Platforms in February 2022, following a disappointing earnings forecast. Despite the sharp drop, analyst estimates for Nvidia’s annual net income through January 2025 have increased to $70.35 billion, up from $68 billion before last week’s earnings report. With the decline in its share price, Nvidia’s stock now trades at 34 times expected earnings, down from over 40 in June, aligning with its two-year average.
Other AI-linked chipmakers, like Broadcom, also faced losses, with Broadcom’s stock dropping 6.2% ahead of its quarterly report. The broader selloff in semiconductor stocks underscores the current investor apprehension about the sustainability and profitability of the ongoing AI boom.
Featured Image courtesy of UK Investor Magazine
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