Nvidia's shares plunge 9.5% in historic single-day market value drop

Shares of Nvidia (NVDA.O) plummeted by 9.5% on Tuesday, marking the largest single-day drop in market value ever recorded for a US company.

The significant decline translates to a staggering $279 billion loss in market capitalization.

This dramatic decrease reflects a broader shift in investor sentiment as enthusiasm over artificial intelligence (AI) technology wanes amid a general market selloff triggered by underwhelming economic data.

The sharp drop in Nvidia's stock follows a quarterly forecast issued last Wednesday that failed to meet the high expectations of investors.

Nvidia's market value erosion highlights growing skepticism about the AI boom that has driven much of this year's stock market rally.

Despite the setback, Nvidia's shares are still up 118% year-to-date, though this recent dip raises concerns about the sustainability of the tech sector’s rapid gains.

Source: TradingView

Chip index drops 7.75% amid broader market retreat

The Philadelphia Semiconductor Index (PHLX) saw a severe 7.75% decline, its largest single-day drop since 2020. This decrease underscores the broader market trend impacting technology and semiconductor stocks.

The downturn in the chip sector accompanies a general decline in major market indices, with the Nasdaq (.IXIC) falling 3.3% and the S&P 500 (.SPX) down 2.1%.

The decline in chip stocks is compounded by Intel's (INTC.O) nearly 9% drop in share price. This fall follows reports that CEO Pat Gelsinger and other executives are preparing to present a restructuring plan to the board of directors.

The proposed changes include divesting from non-core businesses and reevaluating capital spending to address ongoing challenges at the company.

AI investment concerns lead to market volatility

The recent market volatility reflects growing investor concerns about the returns on substantial investments in AI.

Research from BlackRock highlights doubts about whether the current wave of AI-related capital expenditures will generate sufficient revenue to justify the investment.

The analysis points to a need for investors to carefully assess how companies are utilizing their balance sheets and capital.

The scrutiny over AI investments follows disappointing quarterly reports from other tech giants such as Microsoft (MSFT.O) and Alphabet (GOOGL.O), which also saw their shares decline after their July earnings releases.

These developments contribute to the overall caution surrounding the tech sector and AI-related investments.

Federal Reserve policy expectations

The current market trends are also influenced by expectations regarding the Federal Reserve's monetary policy. Investors largely anticipate a 25 basis point cut in interest rates during the Fed’s September 18 policy announcement.

However, there has been a rise in expectations for a 50 basis point cut, increasing from 30% to 37% after recent data indicated weak activity in the manufacturing sector.

This week will provide additional insights into the labor market, culminating in Friday’s key government payrolls report.

Market strategist Steve Sosnick of Interactive Brokers expressed concerns about potential job market data, noting that seasonality and other factors could impact the upcoming numbers.

Nvidia’s loss surpasses Meta’s previous record drop

Nvidia’s one-day market value loss exceeds the $232 billion decline suffered by Meta Platforms (META.O) on February 3, 2022, following a dismal earnings forecast.

This record-setting loss for Nvidia underscores the intensity of the current market reaction to tech stocks and AI investments.

Following Nvidia's latest quarterly report, the mean analyst estimate for annual net income through January 2025 has increased to $70.35 billion, up from approximately $68 billion prior to the report.

Despite these increased earnings estimates, Nvidia's stock is now trading at 34 times expected earnings, a decrease from over 40 times in June but consistent with its two-year average.

Broadcom (AVGO.O), another key player in the chip sector benefiting from the AI boom, also experienced a decline, falling 6.2% ahead of its upcoming quarterly report scheduled for Thursday.