Shares of AI heavyweight Nvidia tumbled 9.5% on Tuesday in the deepest-ever single-day decline in market value for a US company, as investors softened their optimism about artificial intelligence in a broad market selloff following tepid economic data.
Nvidia lost $279-billion in market capitalisation, a major indication that investors are becoming more cautious about emerging AI technology that has fuelled much of this year’s stock market gains.
The PHLX chip index 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, meanwhile, fell 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 chip maker.
Worries about slow payoffs from hefty AI investments have dogged Wall Street’s most valuable companies in recent weeks, with shares of Microsoft and Alphabet trading lower following their quarterly reports in July.
Capex
“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.
Read: Intel shareholders sue chip maker after stock crash
Nvidia’s record one-session loss in stock market value was greater than the $232-billion decline suffered by Facebook owner Meta Platforms on 3 February 2022, when the social media company issued a dismal forecast, according to LSEG data.
Following Nvidia’s quarterly report last week, the mean analyst estimate for annual net income to January 2025 has climbed to $70.35-billion from about $68-billion ahead of last week’s report.
Those increased earnings estimates, combined with Nvidia’s share losses, have the chip maker now trading at 34x expected earnings, down from over 40 in June and in line with its two-year average.
Broadcom, another chip maker that has benefited from the boom in AI computing, fell 6.2% ahead of its quarterly report on Thursday. — Noel Randewich, (c) 2024 Reuters