Shares of Nvidia (NVDA.O), a major player in artificial intelligence, plunged 9.5% on Tuesday, marking the steepest single-day market value loss ever recorded for a U.S. company.
The drop wiped out $279 billion from Nvidia’s market capitalization, signaling growing investor caution towards AI technology, which has been a key driver of this year’s stock market surge.
The broader market also suffered, with the PHLX chip index (.SOX) plummeting 7.75%, its biggest one-day decline since 2020.
This selloff comes after Nvidia’s quarterly forecast last Wednesday fell short of the lofty expectations set by investors amid the AI boom.
“Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed,” commented Todd Sohn, an ETF strategist at Strategas Securities.
Intel (INTC.O) also took a hit, dropping nearly 9% after a Reuters report revealed that CEO Pat Gelsinger and other key executives are preparing to present a plan to the company’s board to cut unnecessary businesses and revamp capital spending at the struggling chipmaker.
Concerns about the slow returns on significant AI investments have increasingly weighed on Wall Street’s most valuable companies. In recent weeks, shares of Microsoft (MSFT.O) and Alphabet (GOOGL.O) have also traded lower following their quarterly reports in July.
“Some recent research has questioned if the revenues from AI alone will eventually justify this wave of capital spending on it,” noted BlackRock strategists in a client note.
They added, “When assessing AI capex by individual companies, investors must consider if they are making the best use of their balance sheets and capital.”
Despite Tuesday’s losses, Nvidia’s stock remains up 118% year-to-date, although it has come down from its record high close in July, when it had nearly tripled in value for 2024.
The broader market also saw declines, with the Nasdaq (.IXIC) dropping 3.3% and the S&P 500 (.SPX) falling 2.1%.
Investors are closely watching the Federal Reserve’s upcoming policy announcement on Sept. 18, with most expecting a 25 basis point interest rate cut, although expectations for a 50 basis point cut rose to 37% from 30% after Tuesday’s soft manufacturing data.
Market participants are also anticipating a key government payrolls report on Friday, with concerns about what the job numbers might reveal.
Nvidia’s record loss in market value exceeded the $232 billion decline experienced by Meta Platforms (META.O) on Feb. 3, 2022, following a dismal forecast by the social media giant.
Following Nvidia’s recent quarterly report, the mean analyst estimate for annual net income through January 2025 has risen to $70.35 billion from around $68 billion before the report.
Nvidia is now trading at 34 times expected earnings, down from over 40 in June, aligning with its two-year average.
Meanwhile, Broadcom (AVGO.O), another chipmaker benefiting from the AI computing boom, fell 6.2% ahead of its quarterly report due on Thursday.
Source-Reuters
