Nvidia Faces Historic Stock Decline Amid AI Skepticism and Market Volatility

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Shares of Nvidia (NVDA.O), a leading player in the artificial intelligence (AI) sector, plummeted by 9.5%, marking the largest single-day market value drop ever experienced by a U.S. company. This sharp decline came as a result of a broader market selloff triggered by lukewarm economic data and growing caution among investors regarding the AI technology sector.

Nvidia’s market capitalization decreased by an unprecedented $279 billion, signaling a significant shift in investor sentiment. The dramatic drop reflects mounting concerns about the sustainability of the AI boom that has previously driven substantial stock market gains throughout the year. The tech giant’s shares fell sharply after the company issued a quarterly forecast that failed to meet the high expectations set by investors who had been fueling the stock’s remarkable rally.

Todd Sohn, an ETF strategist at Strategas Securities, commented on the situation, noting, “Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed.” This sentiment highlights the growing skepticism surrounding the sector’s future prospects.

The decline in Nvidia’s stock was part of a larger downturn in the semiconductor industry. The PHLX Semiconductor Index (.SOX) experienced a significant drop of 7.75%, marking its largest one-day decline since 2020. This sector-wide slump is indicative of broader concerns about the return on investment in AI technologies.

Intel (INTC.O) also saw a nearly 9% decline in its stock price. This drop followed reports that CEO Pat Gelsinger and other top executives are expected to present a plan to the company’s board aimed at cutting non-essential businesses and restructuring capital spending in response to ongoing challenges at the chipmaker.

The recent turbulence in the tech sector has been partly fueled by doubts about the returns from substantial investments in AI. Major companies, including Microsoft (MSFT.O) and Alphabet (GOOGL.O), have seen their stock prices fall following their quarterly reports in July, reflecting similar concerns.

BlackRock strategists, in a client note, emphasized the need for investors to scrutinize whether AI investments are yielding the anticipated returns. They advised, “When assessing AI capex by individual companies, investors must consider if they are making the best use of their balance sheets and capital.”

Nvidia’s stock had previously surged nearly threefold in 2024, but the recent losses have reduced its year-to-date gain to 118%. Despite this decline, the chipmaker remains a significant player in the market, with its stock now trading at 34 times expected earnings, down from over 40 in June, aligning with its two-year average.

The broader market also faced declines, with the Nasdaq Composite Index (.IXIC) falling by 3.3% and the S&P 500 Index (.SPX) down by 2.1%. These declines were influenced by investor expectations of a potential Federal Reserve interest rate cut, with many anticipating a 25 basis point reduction in the September 18 policy announcement. However, there is also a growing minority expectation of a 50 basis point cut following recent economic data indicating sluggish activity in the manufacturing sector.

Investors are also awaiting a series of labor market data this week, culminating in Friday’s crucial government payrolls report. Steve Sosnick, a market strategist at Interactive Brokers, expressed concern about the upcoming job numbers and their potential impact on market sentiment.

Nvidia’s record single-session loss in market value surpasses the $232 billion decline experienced by Meta Platforms (META.O) on February 3, 2022, when the social media giant issued a disappointing forecast. Following Nvidia’s recent quarterly report, analysts have increased their mean estimate for the company’s annual net income through January 2025 to $70.35 billion, up from approximately $68 billion prior to the report. Despite this, the increased earnings estimates have not been enough to offset the stock’s recent losses.

Broadcom (AVGO.O), another chipmaker benefiting from the AI surge, also saw its shares drop by 6.2% ahead of its quarterly report on Thursday, further reflecting the sector’s current volatility.

As the market grapples with these challenges, the tech and semiconductor sectors will remain under close scrutiny. Investors are navigating a complex landscape where rapid technological advancements and economic uncertainties intersect, shaping the future outlook for companies heavily invested in AI and related technologies.