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Nvidia shares closed down 7 per cent on Tuesday as a heavy sell-off in chipmaking stocks reignited ahead of a number of closely watched earnings reports from Big Tech companies this week.
The Silicon Valley chipmaker, which is the dominant provider of the powerful processors needed for building artificial intelligence systems, has fallen more than 20 per cent since it briefly became the world’s most valuable publicly traded company last month, cutting its market capitalisation by almost $750bn.
Other chip stocks followed. Arm, the semiconductor designer that has also been a big beneficiary of investors’ enthusiasm for AI-related stocks this year, closed down 6 per cent in New York.
Both Nvidia and Arm are still more than double their value this time last year, driven by a wave of capital spending by the likes of Microsoft, Google, Amazon and Meta to build out the technical underpinnings of AI.
Ahead of Microsoft’s earnings report, traders were fretting that profit expectations for companies involved in AI are too high and that capital spending is running far ahead of returns. Microsoft’s stock fell in after-hours trading following its announcement that cloud growth was slowing as AI demand outstripped its capacity.
Samsung Electronics later reported it expected sales of its AI memory chips to more than triple in the second half, compared to the first, pushing its shares in Seoul more than 2 per cent higher.
“We’ve seen money flow out of Big Tech, mostly I think because they have had an incredible run-up, and that of course gave room for a little bit of a sell-off,” Daniel Newman, chief executive of The Futurum Group, told the Financial Times. “Sector rotation, continued economic uncertainty, elections, geopolitics, and concerns around China” had all contributed to Nvidia’s fall.
The tech-heavy Nasdaq Composite index ended 1.3 per cent lower while the benchmark S&P 500 eased 0.5 per cent on the day. Shares in chipmakers AMD and Intel — which report earnings this week — also traded lower, dropping almost 1 per cent and 2.3 per cent respectively.
“There’s a lot of angst in the market ahead of reporting,” said Emmanuel Cau, head of European equity strategy at Barclays. Apple, Amazon and Meta will also be publishing their quarterly numbers later this week.
He added investors were also cautious ahead of a busy few days for central banks, with interest rate decisions by the Bank of Japan, US Federal Reserve and Bank of England all due.
Investors have been selling tech companies in recent weeks, pushing the Nasdaq down about 8 per cent from its peak in mid-July. The index suffered its worst day since 2022 last week after results from Alphabet and Tesla sparked investor worries about the size and timing of likely returns from the so-called Magnificent Seven tech companies’ vast investments in AI.
Artificial intelligence-related shares have driven the stock market rally this year. Despite recent pullbacks, the Nasdaq and the broader S&P 500 are still ahead by roughly 14 per cent.
“Market participants used this morning’s equity gains to unload stocks in the afternoon ahead of pivotal announcements from the Fed and Bank of Japan tomorrow — and four of the Mag Seven reporting this week,” said José Torres, senior economist at Interactive Brokers.
“Bullish players will be aiming for a bright picture on the future of AI in Mag Seven earnings calls.”
