Market Analysis

Nvidia's market value declines by a record $279 billion as Wall St.

Amos Simanungkalit · 04 Sep10K Views

Image Credit: Reuters

Shares of AI leader Nvidia (NASDAQ) plunged 9.5% on Tuesday, marking the largest single-day loss in market value ever recorded by a U.S. company. This drop occurred amid a broad market selloff, fueled by lackluster economic data and a cooling of investor enthusiasm for artificial intelligence.

Nvidia's market capitalization decreased by $279 billion, signaling growing investor caution regarding AI, which has driven much of this year's stock market gains.

The PHLX Semiconductor Index also took a hit, tumbling 7.75%—its steepest one-day decline since 2020.

These concerns about AI surfaced after Nvidia's quarterly forecast last Wednesday fell short of the lofty expectations set by investors, who had been behind a dramatic rally in the company's stock.

"An enormous amount of capital has flowed into tech and semiconductors over the past year, creating a heavily skewed market," said Todd Sohn, an ETF strategist at Strategas Securities.

Intel (NASDAQ) shares also fell nearly 9% following reports from Reuters that CEO Pat Gelsinger and top executives are expected to present a plan to the board to cut non-essential businesses and overhaul capital spending at the struggling chipmaker.

In recent weeks, Wall Street's most valuable companies have faced growing concerns about the delayed returns on substantial AI investments. This has weighed on stocks like Microsoft (NASDAQ) and Alphabet (NASDAQ), which have both seen declines following their quarterly reports in July.

"Recent research has raised questions about whether AI-related revenues alone will eventually justify the current wave of capital spending. When evaluating AI capital expenditures by individual companies, investors need to consider whether these companies are optimizing their balance sheets and capital," BlackRock (NYSE) strategists wrote in a client note on Tuesday.

Despite its recent losses, Nvidia remains up 118% year-to-date, although this is down from its nearly tripled value at its July peak.

The downturn in chip stocks coincided with broader declines on Wall Street, where the Nasdaq dropped 3.3% and the S&P 500 fell 2.1%.

Most investors anticipate the Federal Reserve will cut interest rates by 25 basis points in its upcoming policy announcement on September 18, according to CME's FedWatch Tool. However, the expectation for a 50 basis point cut increased to 37% from 30% after Tuesday's data indicated continued softness in the manufacturing sector.

This week, investors are also awaiting a series of labor market reports, culminating in Friday's crucial government payrolls data.

"There's concern about what the jobs numbers will reveal, especially regarding seasonality," cautioned Steve Sosnick, a market strategist at Interactive Brokers (NASDAQ).

Despite Tuesday's decline, the semiconductor index is still up 14% for the year, slightly trailing the S&P 500's 16% gain.

Nvidia's record one-day loss in market value surpassed the $232 billion drop suffered by Facebook-owner Meta Platforms (NASDAQ) on February 3, 2022, when the social media giant issued a bleak forecast, according to LSEG data.

Following Nvidia's quarterly report last week, analysts have raised their average estimate for annual net income through January 2025 to $70.35 billion, up from about $68 billion before the report.

With these increased earnings estimates and Nvidia's recent share price drop, the company's stock is now trading at 34 times expected earnings, down from over 40 in June and aligning with its two-year average.

Broadcom (NASDAQ), another chipmaker benefiting from the AI boom, also declined 6.2% ahead of its quarterly report on Thursday.