Nvidia shares fell 9.5% on Tuesday, wiping out $279 billion in market value. This drop is the largest ever recorded in a single day by a company in the United States. This massive sell-off has weakened optimism about artificial intelligence (AI) following the release of unfavorable economic data.
According to Reuters, investors have become more cautious about large investments in AI, a key driver of recent stock market rallies. In addition, Nvidia shares fell an additional 2% in after-hours trading following a U.S. Department of Justice antitrust investigation.
Nvidia was not the only one affected. Intel also experienced a near 9% drop after its CEO announced plans to cut unnecessary businesses and overhaul its spending. Pessimism about the future of AI also affected giants such as Microsoft and Alphabet, both of which reported declines in their shares following their latest quarterly reports.
In a note sent to clients, BlackRock noted that some investors are beginning to question whether the revenues generated by AI will justify the high levels of spending on the technology. This outlook has raised concerns about whether companies use their capital and financial resources efficiently.
Nvidia's plunge came against a backdrop of broader declines on Wall Street. The Nasdaq retreated 3.3%, while the S&P 500 fell 2.1%. The market is also waiting for the Federal Reserve to cut interest rates in September, although some investors are betting on a more aggressive cut following economic data released Tuesday.
Later this week, investors will get more information on the U.S. labor market, culminating with Friday's expected payrolls report. According to experts cited by Reuters, employment performance could influence overall perceptions about the strength of the economy and the impact of AI on future growth.
Finally, Nvidia has gone from trading at more than 40 times its expected earnings in June to 34 times currently. While still a strong stock, the reduction reflects a new caution on the part of investors, who are now more cautiously assessing AI's role in the technology market's immediate future.
