Shares of AI heavyweight Nvidia (NVDA.O), opens new tab tumbled 9.5% on Tuesday in the deepest ever single-day decline in market value for a U.S. company, as investors softened their optimism about artificial intelligence in a broad market selloff following tepid economic data.
Nvidia lost $279 billion in market capitalization, a major indication that investors are becoming more cautious about emerging AI technology that has fueled much of this year’s stock market gains.
The PHLX chip index (.SOX), opens new tab plummeted 7.75%, its biggest one-day drop since 2020.
The latest jitters about AI come after Nvidia last Wednesday gave a quarterly forecast that failed to meet the lofty expectations of investors who have driven a dizzying rally in its 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), opens new tab dropped nearly 9% after Reuters reported CEO Pat Gelsinger and key executives are expected to present a plan to the company’s board of directors to slice off unnecessary businesses and revamp capital spending at the struggling chipmaker.
Worries about slow payoffs from hefty AI investments have dogged Wall Street’s most valuable companies in recent weeks, with shares of Microsoft (MSFT.O), opens new tab and Alphabet (GOOGL.O), opens new tab trading 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. When assessing AI capex by individual companies, investors must consider if they are making the best use of their balance sheets and capital,” BlackRock strategists wrote in a client note on Tuesday.
At its July record high close, Nvidia had almost tripled in 2024. Its recent losses leave it up 118% year to date.
Tuesday’s weakness in chip stocks accompanied wide declines on Wall Street, with the Nasdaq (.IXIC), opens new tab dropping 3.3% and the S&P 500 (.SPX), opens new tab down 2.1%.
Investors mostly expect the Federal Reserve to cut interest rates by 25 basis points in its Sept. 18 policy announcement, according to CME’s FedWatch Tool, opens new tab.
However, minority expectations of a 50 basis point cut rose to 37% from 30% after data on Tuesday signaled activity in the manufacturing sector remains soft.
Investors will get a host of data on the labor market this week, 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.
Source: https://www.reuters.com/markets/nvidia-chip-index-tumble-investors-pause-ai-rally-2024-09-03/