Shares of AI heavyweight Nvidia (NVDA.O) tumbled 9.5% on Tuesday, marking the deepest single-day decline in market value for a U.S. company. This massive drop came as investors tempered their optimism about artificial intelligence in the face of a broad market selloff, following tepid economic data.
Nvidia’s market capitalization fell by $279 billion, signaling growing caution among investors regarding emerging AI technology, which had driven much of this year’s stock market gains. This decline also affected the broader chip industry, with the PHLX chip index (.SOX) plummeting 7.75%, marking its largest one-day drop since 2020.
The latest concerns about AI follow Nvidia’s quarterly forecast last Wednesday, which failed to meet the lofty expectations of investors who had fueled a dizzying rally in the stock. “Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed,” said Todd Sohn, an ETF strategist at Strategas Securities.
Intel (INTC.O) also experienced a sharp decline, dropping nearly 9%. This came after Reuters reported that CEO Pat Gelsinger and key executives are expected to present a plan to the company’s board of directors, aiming to streamline operations by cutting unnecessary businesses and revamping capital spending at the struggling chipmaker.
Concerns over slow returns from substantial AI investments have recently weighed on Wall Street’s most valuable companies. Shares of Microsoft (MSFT.O) and Alphabet (GOOGL.O) have both traded lower following their quarterly reports in July, reflecting investor unease about the long-term profitability of AI ventures.
BlackRock strategists highlighted these concerns in a client note on Tuesday, stating, “Some recent research has questioned if the revenues from AI alone will eventually justify this wave of capital spending on it. When assessing AI capex by individual companies, investors must consider if they are making the best use of their balance sheets and capital.”
At its July record high, Nvidia had nearly tripled in 2024. Despite its recent losses, the company remains up 118% year-to-date.
Tuesday’s weakness in chip stocks mirrored broader declines across Wall Street. The Nasdaq (.IXIC) fell 3.3%, while the S&P 500 (.SPX) dropped 2.1%.
Most investors anticipate the Federal Reserve will cut interest rates by 25 basis points in its September 18 policy announcement, according to CME’s FedWatch Tool. However, expectations for a larger 50 basis point cut increased to 37% from 30% after Tuesday’s data suggested continued softness in the manufacturing sector.
This week, investors will also focus on labor market data, culminating in Friday’s key government payrolls report. “There’s concern about what the job numbers are going to show, about seasonality,” warned Steve Sosnick, a market strategist at Interactive Brokers.
The chip index is now up 14% in 2024, just under the S&P 500’s 16% gain.
Nvidia’s record one-day loss in market value of $279 billion surpasses the $232 billion drop suffered by Facebook-owner Meta Platforms (META.O) on February 3, 2022, when the social media giant issued a grim forecast, according to LSEG data.
Following Nvidia’s quarterly report last week, the mean analyst estimate for its annual net income through January 2025 has increased to $70.35 billion, up from approximately $68 billion before the report. Despite the increase in earnings estimates, Nvidia is now trading at 34 times expected earnings, down from over 40 in June, aligning with its two-year average.
Broadcom (AVGO.O), another chipmaker benefiting from the AI computing boom, fell 6.2% ahead of its quarterly report on Thursday.