It has been called the most significant corporation in the world right now.
However, recent worries about Nvidia, the chipmaker driving the AI revolution, which this summer saw its valuation reach $3 trillion and make it America’s second-largest public business after Apple, have sparked a fresh sell-off in the global market.
The value of Nvidia was erased on Tuesday as its shares fell by 9.5%, marking the worst single-day loss for an American stock ever and wiping off $278.9 billion.
The sell-off, which also caused losses in more general market indices such as the Nasdaq Composite and Dow Jones Industrial Average, seems to have been driven by a number of causes.
Because Nvidia’s stock has spurred a wave of investment from major tech businesses looking to AI to generate new innovation and profit, the company’s performance has come to be seen as a harbinger for the global economy.
Its share price fell 1.7% less on Wednesday. Its total market capitalization, or the company’s worth determined by the value of its shares, is still close to $2.6 trillion.
In a remark this week, Dario Perkins, managing director at TS Lombard financial company, stated that “the massive investment in AI being done by the other big tech companies” is what’s responsible for the jump in NVIDIA’s profitability.
“This establishes a vicious cycle that makes NVIDIA—and the US stock market as a whole—dependent on sustained large-scale AI investments.” Perkins stated that “we could have a problem” if the top five publicly listed firms, including Microsoft and Amazon, stopped funding Nvidia.
Previously, Nvidia was well-known for producing graphics cards for video games. However, in a strange but fortunate turn of events, these cards are ideal for managing the processing load that artificial intelligence needs to carry out its job.
Consequently, Nvidia hardware now accounts for more than 40% of the hardware expenditures of both Microsoft and Meta, the parent company of Facebook.
A group of market observers met at a bar last month to see Nvidia release its quarterly earnings since the business is now so highly watched; nonetheless, some later saw the occasion as a sell signal.
Wedbush Securities analyst Dan Ives recently said, “Nvidia has changed the tech and global landscape as its [graphics processing units] have become the new oil and gold in the IT landscape, with its chips powering the AI revolution and being the only game in town for now.”
Nvidia’s stock price has been negatively impacted by growing concerns about a wider economic slowdown and a resurgence of skepticism regarding the timeline for AI’s payoff, or more specifically, when all the current investment in the technology will finally result in clearly defined use cases and increased profitability.
In an interview with the Financial Times last week, Daron Acemoglu, an economist at the Massachusetts Institute of Technology, referred to artificial intelligence as “a few-trick pony” and stated, “I don’t think AI will measure up to the internet.”
“AI has some amazing potential, but it hasn’t yet had the same widespread influence on almost everything we do or generated as many new things,” Acemoglu stated. “It might, but maybe we’ll refer to it as new technology when it happens, maybe that will take another ten years, and so on.”
New economic warning signs have coupled with the mistrust. Following the jobs boom and broader economic recovery from the Covid epidemic, the U.S. labor market has started to exhibit clear symptoms of deterioration. The housing sector’s issues in China are starting to affect consumption. Oil prices, which usually reflect the state of the world economy, have dropped to their lowest points in three years.
However, two new findings this week raise even more questions about when AI investments will start to pay off.
Analysts at BlackRock Investment Institute noted, “Investors are debating whether future revenues for top tech and cloud computing firms could justify billions of dollars of capital spending being poured into artificial intelligence (AI).”
In a similar vein, JP Morgan Asset Management cautioned that in order for “adequate returns on AI infrastructure to materialize,” businesses would need to begin to substantially shift their focus from “training” to “production.”
The news on Tuesday from Bloomberg News that the Justice Department had started investigating Nvidia’s antitrust violations further complicated matters. Nvidia is predicted to hold a minimum of 90% of the market for AI processors for the next two years.
Another concern is that Intel, which was formerly the market leader in computer chips made in the United States, is in risk of being delisted from the Dow Jones Industrial Average after seeing a 54% loss in share price this year, according to a Reuters article. Although investors have penalized Intel for not capitalizing enough on the AI boom, it’s possible that more general worries about the technology’s potential benefits increased the company’s losses.
Even while Nvidia has increased in price, Steve Sosnick, chief strategist at Interactive Brokers financial firm, told NBC News via email that the company is still one of the most volatile companies on the market, meaning significant swings in price are possible.
Therefore, Sosnick argued, “investors who believe in the company had better get used to the swings.” When volatility is rising (also known as “socially acceptable volatility”), investors love it; when it is falling, they detest it. Regretfully, one typically brings the other.
The sell-off on Tuesday is by no means a fatal blow to Nvidia’s stock, which has increased to over $109 after more than doubling in 2024. The tech-heavy Nasdaq index has increased by over two thirds since 2023 and is still 16% higher year over year.
According to Sosnick, investment managers may be primarily motivated to maintain the significant price gain that Nvidia’s shares have already seen this year, which might explain a large portion of the stock sales of the business, which is traded under the symbol NVDA.
“I think institutional investors are taking a more sober view, focusing on locking in gains in the back half of the year, and that is pressuring the stock,” Sosnick said. “I believe that individual investors are still understandably enamored with NVDA—hell, many of them made a lot of money.” “They realize that profit-taking never made anyone broke.”
