Nvidia gave a quarterly forecast last week that failed to meet investors’ expectations
04 September 2024 - 09:58
byNoel Randewich and Suzanne McGee
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Shares of AI heavyweight Nvidia tumbled 9.5% on Tuesday in the deepest-ever single-day decline in market value for a US company. Investors softened their optimism about artificial intelligence (AI) in a broad market sell-off following tepid economic data.
Nvidia lost $279bn in market capitalisation, a major indication that investors are becoming more cautious about emerging AI technology that has fuelled much of 2024’s stock market gains.
The PHLX chip index plummeted 7.75%, its biggest one-day drop since 2020.
The latest jitters about AI come after Nvidia gave a quarterly forecast last Wednesday that failed to meet the lofty expectations of investors, who have driven a dizzying rally in its stock.
“Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed,” said Todd Sohn, an ETF strategist at Strategas Securities.
Intel dropped nearly 9% after a report that CEO Pat Gelsinger and key executives were expected to present a plan to the company’s board of directors to slice off unnecessary businesses and revamp capital spending at the struggling chipmaker.
Worries about slow payoffs from hefty AI investments have dogged Wall Street’s most valuable companies in recent weeks, with shares of Microsoft and Alphabet trading lower following their quarterly reports in July.
“Some recent research has questioned if the revenues from AI alone will eventually justify this wave of capital spending on it. When assessing AI capex by individual companies, investors must consider if they are making the best use of their balance sheets and capital,” BlackRock strategists wrote in a client note on Tuesday.
At its July record high close, Nvidia had almost tripled in 2024. Its recent losses leave it up 118% year to date.
Tuesday’s weakness in chip stocks accompanied wide declines on Wall Street, with the Nasdaq dropping 3.3% and the S&P 500 down 2.1%.
Investors mostly expect the Federal Reserve to cut interest rates by 25 basis points in its September 18 policy announcement, according to CME’s FedWatch Tool.
However, minority expectations of a 50 basis point cut rose to 37% from 30% after data on Tuesday signalled activity in the manufacturing sector remained soft.
Investors will get a host of data on the US labour market this week, culminating in Friday’s key government payrolls report.
“There’s concern about what the job numbers are going to show, about seasonality,” warned Steve Sosnick, a market strategist at Interactive Brokers.
The chip index is now up 14% in 2024, just under the S&P 500's 16% gain.
Nvidia’s record one-session loss in stock market value was greater than the $232bn decline suffered by Facebook-owner Meta Platforms on February 3 2022, when the social media company issued a dismal forecast, according to LSEG data.
Following Nvidia’s quarterly report last week, the mean analyst estimate for annual net income through January 2025 has climbed to $70.35bn from about $68bn ahead of last week's report.
Those increased earnings estimates, combined with Nvidia's share losses, have the chipmaker now trading at 34 times expected earnings, down from over 40 in June and in line with its two-year average.
Broadcom, another chipmaker that has benefited from the boom in AI computing, fell 6.2% ahead of its quarterly report on Thursday.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Huge $279bn loss in market value for Nvidia
Nvidia gave a quarterly forecast last week that failed to meet investors’ expectations
Shares of AI heavyweight Nvidia tumbled 9.5% on Tuesday in the deepest-ever single-day decline in market value for a US company. Investors softened their optimism about artificial intelligence (AI) in a broad market sell-off following tepid economic data.
Nvidia lost $279bn in market capitalisation, a major indication that investors are becoming more cautious about emerging AI technology that has fuelled much of 2024’s stock market gains.
The PHLX chip index plummeted 7.75%, its biggest one-day drop since 2020.
The latest jitters about AI come after Nvidia gave a quarterly forecast last Wednesday that failed to meet the lofty expectations of investors, who have driven a dizzying rally in its stock.
“Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed,” said Todd Sohn, an ETF strategist at Strategas Securities.
Intel dropped nearly 9% after a report that CEO Pat Gelsinger and key executives were expected to present a plan to the company’s board of directors to slice off unnecessary businesses and revamp capital spending at the struggling chipmaker.
Worries about slow payoffs from hefty AI investments have dogged Wall Street’s most valuable companies in recent weeks, with shares of Microsoft and Alphabet trading lower following their quarterly reports in July.
“Some recent research has questioned if the revenues from AI alone will eventually justify this wave of capital spending on it. When assessing AI capex by individual companies, investors must consider if they are making the best use of their balance sheets and capital,” BlackRock strategists wrote in a client note on Tuesday.
At its July record high close, Nvidia had almost tripled in 2024. Its recent losses leave it up 118% year to date.
Tuesday’s weakness in chip stocks accompanied wide declines on Wall Street, with the Nasdaq dropping 3.3% and the S&P 500 down 2.1%.
Investors mostly expect the Federal Reserve to cut interest rates by 25 basis points in its September 18 policy announcement, according to CME’s FedWatch Tool.
However, minority expectations of a 50 basis point cut rose to 37% from 30% after data on Tuesday signalled activity in the manufacturing sector remained soft.
Investors will get a host of data on the US labour market this week, culminating in Friday’s key government payrolls report.
“There’s concern about what the job numbers are going to show, about seasonality,” warned Steve Sosnick, a market strategist at Interactive Brokers.
The chip index is now up 14% in 2024, just under the S&P 500's 16% gain.
Nvidia’s record one-session loss in stock market value was greater than the $232bn decline suffered by Facebook-owner Meta Platforms on February 3 2022, when the social media company issued a dismal forecast, according to LSEG data.
Following Nvidia’s quarterly report last week, the mean analyst estimate for annual net income through January 2025 has climbed to $70.35bn from about $68bn ahead of last week's report.
Those increased earnings estimates, combined with Nvidia's share losses, have the chipmaker now trading at 34 times expected earnings, down from over 40 in June and in line with its two-year average.
Broadcom, another chipmaker that has benefited from the boom in AI computing, fell 6.2% ahead of its quarterly report on Thursday.
Reuters
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