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On Tuesday 3rd September 2024, Nvidia, a major player in artificial intelligence (AI), saw its stock drop by 9.5%, marking the largest single-day loss in market value for a U.S. company. The drop resulted in a $279 billion decrease in Nvidia’s market capitalization, signaling that investors are becoming more cautious about the AI technology that has driven much of this year’s stock market gains.
The PHLX chip index also took a significant hit, falling 7.75%, its biggest one-day drop since 2020. This decline reflects growing concerns about the future of AI after Nvidia’s recent quarterly forecast fell short of investors’ high expectations. Todd Sohn, an ETF strategist at Strategas Securities, noted that a massive amount of money has flowed into tech and semiconductor stocks over the past year, leading to an unbalanced market.
Other tech companies faced similar challenges. Intel’s stock dropped nearly 9% following news that CEO Pat Gelsinger and other executives plan to cut unnecessary business segments and revamp spending at the struggling chipmaker. Additionally, shares of Microsoft and Alphabet have also declined recently, as investors worry about the long-term payoffs of their AI investments.
BlackRock strategists pointed out that recent research questions whether the revenue from AI will be enough to justify the significant capital being spent on it. Nvidia’s stock had nearly tripled in 2024, but recent losses have reduced its year-to-date gain to 118%.
Tuesday’s decline in chip stocks was part of a broader market selloff, with the Nasdaq dropping 3.3% and the S&P 500 falling 2.1%. Investors are closely watching the Federal Reserve’s upcoming decision on interest rates, with many expecting a 25 basis point cut. However, the possibility of a larger 50 basis point cut has increased following weak manufacturing data.
Despite these challenges, Nvidia’s recent earnings estimates have risen, though the company’s stock is now trading at a lower valuation than earlier this year. Broadcom, another chipmaker benefiting from AI, also saw its shares drop by 6.2% ahead of its quarterly report.