By Noel Randwick and Susan McGee
(Reuters) – Shares of artificial intelligence giant Nvidia Corp (NASDAQ:NVD) plunged 9.5 percent on Tuesday, the deepest one-day drop ever in the market value of a U.S. company, as investors tempered their optimism about artificial intelligence in a broad market sell-off following tepid economic data.
Nvidia lost $279 billion in market value, a key sign that investors are becoming more cautious about the emerging artificial intelligence technology that has fueled much of this year’s stock market gains.
The PHLX blue-chip index fell 7.75%, its biggest daily drop since 2020.
The latest concerns about AI come after Nvidia on Wednesday delivered a quarterly outlook that failed to meet the high expectations of investors who had driven a stunning rally in its shares.
“There has been so much money going into technology and semiconductor companies in the last 12 months that the trade has become completely skewed,” said Todd Sohn, exchange-traded fund strategist at Stratigas Securities.
Intel (NASDAQ:) shares fell about 9% after Reuters reported that Chief Executive Pat Gelsinger and key executives are expected to present a plan to the company’s board to cut non-essential businesses and reorganize capital spending at the struggling chipmaker.
Concerns about slow returns from massive investments in artificial intelligence have haunted Wall Street’s most valuable companies in recent weeks, with shares of Microsoft (NASDAQ:) and Alphabet (NASDAQ:) trading lower after their July quarterly reports.
“Some recent research has questioned whether returns from AI alone will ultimately justify this wave of capital spending on it,” BlackRock (NYSE: ) strategists wrote in a note to clients on Tuesday. “When evaluating AI capital by individual companies, investors should consider whether they are making the most of their balance sheets and capital.”
At its record closing high in July, Nvidia shares had nearly tripled by 2024. Its recent losses put it up 118% year-to-date.
Tuesday’s weakness in chip stocks was accompanied by broad declines on Wall Street, with the Nasdaq down 3.3% and the FTSE down 2.1%.
Investors are widely expected to cut interest rates by 25 basis points at its policy announcement on Sept. 18, according to CME’s FedWatch tool.
However, minority expectations for a 50 basis point rate cut rose to 37% from 30% after data released on Tuesday suggested that activity in the manufacturing sector remains weak.
Investors will receive a slew of data on the labor market this week, culminating in the key government payrolls report on Friday.
“There are concerns about what the jobs numbers will show, about seasonality,” warned Steve Sosnick, market strategist at Interactive Brokers (Nasdaq).
The chip index is now expected to rise 14% in 2024, slightly less than the S&P 500’s 16% gain.
Nvidia’s record single-session loss in stock market value was larger than the $232 billion drop suffered by Facebook parent Meta Platforms (NASDAQ: ) on Feb. 3, 2022, when the social media company issued a bleak outlook, according to LSEG data.
Following Nvidia’s quarterly report last week, analysts’ average annual net income estimate through January 2025 rose to $70.35 billion from about $68 billion before last week’s report.
Those rising earnings estimates, combined with Nvidia’s stock losses, have the chipmaker now trading at 34 times expected earnings, down from more than 40 in June and in line with its average over the past two years.
Broadcom (NASDAQ:BRI), another chipmaker that has benefited from the AI-based computing boom, fell 6.2% ahead of its quarterly report on Thursday.
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