NVIDIA stock plummets 9.5%, wiping out $279B in market value
NVIDIA has experienced a significant 9.5% drop in its stock value, resulting in a loss of $279 billion from the company's market capitalization. This single-day plunge in market value is the largest ever recorded for a US company. At the time of writing, NVIDIA's m-cap stood at $2.6 trillion. The sharp decline is seen as an indicator of growing investor skepticism toward the AI technology that has significantly boosted stock market gains this year.
Broader market selloff impacts PHLX chip index
The broader market selloff, triggered by disappointing economic data, has also impacted the PHLX chip index. The index saw a significant drop of 7.75%, marking its largest single-day fall since 2020. This downturn comes in the wake of NVIDIA's recent quarterly forecast that fell short of investor expectations, leading to concerns about the future profitability of AI investments.
Tech sector sees significant investment shift
Todd Sohn, an ETF strategist at Strategas Securities, commented on the current market situation. He noted that "such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed." This observation underscores the significant shift in investments toward these sectors, further highlighting investor apprehension about AI technology's future profitability.
Intel and other tech giants also face market challenges
Intel's shares also took a hit, falling nearly 9% following reports of a potential restructuring plan by CEO Pat Gelsinger. Other tech giants like Microsoft and Alphabet have seen their share values decrease post their quarterly reports in July. These developments indicate a wider trend of market instability affecting major players in the tech sector, beyond just NVIDIA.
BlackRock strategists question AI investment justification
BlackRock strategists raised questions about the justification for heavy investments in AI. They wrote, "Some recent research has questioned if the revenues from AI alone will eventually justify this wave of capital spending on it." This statement suggests that investors need to evaluate whether their capital is being effectively utilized in these ventures, adding another layer of complexity to the current market scenario.
NVIDIA's market performance and future projections
Despite recent losses, NVIDIA has seen a substantial increase in its value this year. From its record high close in July, the company had nearly tripled its value in 2024. Even after the recent downturn, it remains up by 118% year to date. Following last week's quarterly report, analysts have revised their annual net income estimate for NVIDIA through January 2025 upward to $70.35 billion from about $68 billion.
Wall Street declines and NVIDIA's antitrust investigation
The downturn in chip stocks was part of broader declines on Wall Street, with the Nasdaq falling 3.3% and the S&P 500 down by 2.1%. In a separate development, Bloomberg reported that the US Department of Justice has issued a subpoena to NVIDIA as part of an ongoing antitrust investigation into the company's business practices. This adds another dimension to the challenges currently facing NVIDIA in the market.
