Nvidia’s stock fell by 7% on Tuesday as a significant sell-off in semiconductor shares intensified, overshadowing the tech sector ahead of several key earnings reports from major technology companies this week.
The decline marks a substantial shift for Nvidia, the leading provider of processors essential for artificial intelligence (AI) development. The company, which briefly held the title of the world’s most valuable publicly traded company last month, has seen its market value decrease by nearly $750 billion, a drop of over 20% since then.
The downturn affected other chip stocks as well. Arm, another prominent semiconductor designer that has benefited from the AI boom, experienced a 6% drop in its New York trading session.
Despite these recent declines, both Nvidia and Arm have more than doubled their value compared to last year, driven by significant investments from tech giants like Microsoft, Google, Amazon, and Meta, all of which are expanding their AI infrastructure.
Investor concern has been mounting as they await Microsoft’s earnings report. There are fears that profit expectations for AI-related companies may be overly optimistic and that capital expenditure is outpacing returns. Microsoft’s stock declined in after-hours trading following its announcement of slowing cloud growth and the inability to meet AI demand.
In contrast, Samsung Electronics reported that it anticipates a more than threefold increase in sales of its AI memory chips in the latter half of the year, which helped lift its shares in Seoul by over 2%.
Daniel Newman, CEO of The Futurum Group, attributed the Nvidia decline to a mix of factors including an incredible run-up in Big Tech stocks, sector rotation, economic uncertainty, geopolitical issues, and concerns about China.
The Nasdaq Composite index fell by 1.3%, while the S&P 500 edged down by 0.5% on Tuesday. Shares in AMD and Intel, which are set to release earnings reports this week, also saw declines of nearly 1% and 2.3%, respectively.
Emmanuel Cau, head of European equity strategy at Barclays, noted that investor caution was heightened due to the forthcoming interest rate decisions by central banks, including the Bank of Japan, the US Federal Reserve, and the Bank of England.
Recent weeks have seen a decline in tech stock values, with the Nasdaq dropping approximately 8% from its mid-July peak. The index experienced its worst day since 2022 last week, following disappointing results from Alphabet and Tesla, which raised concerns about the future returns from major tech investments in AI.
Despite the recent pullbacks, the Nasdaq and S&P 500 are still up about 14% for the year. José Torres, senior economist at Interactive Brokers, observed that investors used the morning’s equity gains to offload stocks ahead of significant announcements from the Federal Reserve and the Bank of Japan, as well as earnings reports from four major tech companies.
“The market is keenly focused on the future of AI and the upcoming earnings calls from the ‘Magnificent Seven’ tech firms,” Torres added.
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