Nvidia Stock Falls by 9.5% in Record Market Value Decline Due to AI Worries

According to Reuters, Nvidia’s market capitalization plummeted by $279 billion, indicating increased investor wariness about the AI technology that has significantly contributed to this year’s stock market rise.

The PHLX semiconductor index experienced a significant fall of 7.75%, marking its most substantial single-day decrease since 2020.

Investor concerns about AI surfaced after Nvidia’s latest quarterly forecast didn’t live up to the high expectations that had driven a substantial rise in its stock.

“A significant influx of funds has been directed towards technology and semiconductor industries over the past year, causing a major distortion in the trade landscape,” noted Todd Sohn, an ETF strategist at Strategas Securities.

Intel saw a notable decline, dropping almost 9% following reports that CEO Pat Gelsinger and other top executives will propose a strategy to eliminate non-essential operations and overhaul capital expenditures.

In recent weeks, Wall Street has grown increasingly worried about the sluggish returns from significant AI investments, impacting the shares of Microsoft and Alphabet after their quarterly reports in July.

“Recent studies have cast doubt on whether the revenue generated solely from AI will ultimately validate the current surge in capital expenditures. BlackRock strategists highlighted in a client report that, when evaluating AI-related capital expenditures by individual companies, investors should scrutinize whether these firms are optimizing their balance sheets and capital allocations.”

Despite recent setbacks, Nvidia’s stock is still up 118% since the start of the year. However, it has fallen from its July peak, where it had almost tripled in value in 2024.

The drop in chip stocks occurred alongside a general market downturn, with the Nasdaq decreasing by 3.3% and the S&P 500 slipping by 2.1%.

Investors are predominantly expecting the Federal Reserve to announce a 25 basis point reduction in interest rates at its forthcoming policy update. However, there has been increased speculation about a potential 50 basis point cut due to recent data indicating persistent weakness in the manufacturing sector.

Broadcom, a semiconductor manufacturer riding the wave of the AI computing surge, saw its shares drop by 6.2% in anticipation of its quarterly earnings report on Thursday.