The rapid rise of AI technology companies since the beginning of 2023 has taken a sharp turn as Nvidia experiences a record-breaking drop in value.
On Tuesday, Nvidia, a leading US chip manufacturer in artificial intelligence (AI) technologies, saw its market capitalization plummet by $279 billion. This marks the largest one-day loss in market value ever recorded by a US company. Analysts view this as a sign of growing investor caution towards AI-related technologies. Throughout 2023, AI had been a significant factor contributing to stock market gains in the United States. However, Nvidia’s recent quarterly forecast failed to meet investors’ high expectations, causing a sharp sell-off.
Nvidia shares dropped by 9.5% amid a generally weak market. Since the start of 2023, Nvidia’s stock price had mostly surged, riding the wave of AI hype, which saw the company’s market value soar. In early June, Nvidia’s market capitalization surpassed $3 trillion for the first time, briefly overtaking Apple and trailing only Microsoft.
Concerns Over AI Technology Profitability
A steep percentage drop in Nvidia’s share price now translates to massive triple-digit billion-dollar losses in market capitalization. By mid-2024, Nvidia’s stock had nearly tripled from the beginning of the year, reaching its peak. The last comparable one-day loss occurred in February 2022, when Meta Platforms, the parent company of Facebook, shed $232 billion in market value after issuing a weak forecast.
On Tuesday, the PHLX Semiconductor Index (PHLX) fell by 7.75%, marking its steepest one-day decline since 2020. Concerns that the significant investments in AI may take longer to yield returns have weighed on the most valuable companies on Wall Street in recent weeks. Microsoft and Alphabet, the parent company of Google, also saw their stock prices fall after releasing their quarterly reports in July.
“In the past twelve months, so much money has flowed into technology and semiconductor stocks that the market has become entirely distorted,” said Todd Sohn, an ETF strategist at Strategas Securities. Experts from BlackRock, one of the world’s largest asset managers, noted in a communication to clients on Tuesday that some recent studies have questioned whether AI revenues alone justify the current wave of investment in the technology.
