Nvidia hits all-time low with $279 billion market value drop as AI optimism fades

Nvidia hits bottom: Shares of Nvidia plunged 9.5 per cent on Tuesday, marking the largest single-day loss in market value for a US company ever. This decline, amounting to $279 billion, reflects growing investor caution regarding AI technologies amid a broad market selloff triggered by disappointing economic data.

Semiconductor index plunges

The PHLX Semiconductor Index dropped 7.75 per cent, its steepest one-day fall since 2020, highlighting the widespread impact of the downturn on tech stocks. 

Nvidia’s steep drop follows a recent quarterly forecast that fell short of investor expectations, fuelling market reaction.

“The substantial influx of capital into tech and semiconductors over the past year has created an imbalanced market,” Todd Sohn, an ETF strategist at Strategas Securities, commented.

Intel also saw nearly a 9 per cent drop after Reuters reported that CEO Pat Gelsinger and other executives are set to propose major restructuring plans to the company’s board, aiming to cut unnecessary operations and revise capital expenditures.

AI investment worries grow

Concerns over the slow returns on heavy AI investments have affected other tech giants, with Microsoft and Alphabet also experiencing declines after their July earnings reports. 

BlackRock strategists have questioned whether the substantial capital spent on AI will yield sufficient returns, urging investors to carefully evaluate AI investments and their impact on company finances.

Despite its recent losses, Nvidia's stock has surged 118 per cent year-to-date, though it remains a significant drop from its July peak. The Nasdaq and S&P 500 indices also fell, down 3.3 per cent and 2.1 per cent, respectively.

Market expectations lean towards a 25 basis point rate cut by the Federal Reserve in its September 18 policy meeting, with a smaller but notable chance of a 50 basis point reduction following recent soft manufacturing data. Investors are also awaiting crucial labor market data, including Friday’s payroll report.

Nvidia exceeds Meta’s decline

Nvidia’s record decline surpasses the previous largest single-session drop of $232 billion suffered by Meta Platforms on February 3, 2022, following a dismal forecast. 

Despite the recent drop, Nvidia’s earnings estimates for the year have increased, with the company now trading at 34 times expected earnings, down from over 40 in June and in line with its two-year average.

Ahead of its quarterly report on Thursday, Broadcom, another major player in the AI chip market, fell 6.2 per cent.

(With Reuters Inputs)