On Tuesday, September 3, Nvidia’s shares took a significant hit, dropping by 9.5%. This marked the deepest single-day decline in market value for a US company, as investors grew cautious about AI amidst a broader market selloff triggered by weak economic data.
Nvidia’s market capitalization plummeted by $279 billion, signaling a shift in investor sentiment towards emerging AI technology, which has been a major driver of this year’s stock market gains. The PHLX chip index also fell by 7.75%, its biggest one-day drop since 2020.
The recent jitters about AI followed Nvidia’s quarterly forecast last Wednesday, which failed to meet the high expectations of investors. Todd Sohn, an ETF strategist at Strategas Securities, commented, “Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed.”
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Intel also faced a nearly 9% drop after reports suggested that CEO Pat Gelsinger and key executives are planning to present a strategy to the board to cut unnecessary businesses and revamp capital spending.
Concerns about slow returns from hefty AI investments have affected other major companies as well. Shares of Microsoft and Alphabet traded lower following their quarterly reports in July. BlackRock strategists noted in a client note, “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.”
Nvidia, despite the recent losses ended last week nearly three times higher from its July record close for a year-to-date gain of 118 per cent. The slide in chip stocks was part of a broader market downturn on Tuesday, during which the Nasdaq dropped 3.3% and the S&P declined by 2.1%.
Investors are largely pricing in a 25-basis-point cut from the Federal Reserve for the September 18 policy announcement. But hopes for a 50-basis-point increase lifted modestly to 37 percent from 30 after data showed manufacturing still appears relatively weak.
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Investors are already taking other big steps this week on the labor market when the Friday government jobs report is published. “The job numbers are out this week, and it’s seasonality,” said Steve Sosnick, chief options strategist at Interactive Brokers.
That takes the chip index up 14% in 2024 to shy of the S&P 500’s gain, which is now about a quarter-point higher at roughly that level. The market value lost by Nvidia in a single session represented the largest such decline on record, greater even than when social media company Meta Platforms (META.O) shed $232 billion on Feb. 3 after issuing a dire forecast for its core profit engine.
After Nvidia reported quarterly results last week, the average analyst estimate for full-year excess income to January 2025 rose ripped higher from about $68 billion to $70.35 billion. With Qualcomm Inc. investigating a possible sale and Apple Inc. working to switch its chip business from Intel, virtually all the market’s key themes were represented, with gains in Broadcom on increased AI usage.
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