It is currently said to be the most important company in the world.
But new concerns about Nvidia, the chip maker driving the artificial intelligence revolution that this summer saw its market capitalization exceed $3 trillion, making it the second-largest publicly traded company in the United States after Apple, are triggering fresh stock selling around the world.
Nvidia shares fell 9.5% on Tuesday, wiping $278.9 billion from the company’s market capitalization, the biggest one-day loss ever for a U.S. stock.
A number of factors are believed to have increased the selling pressure, which also led to declines in broader market indexes such as the Nasdaq Composite and the Dow Jones Industrial Average.
Nvidia’s stock price has become a barometer for the broader global economy, fueling a surge in investment from big technology companies hoping that AI can unlock new innovations and profits.
The company’s shares fell another 1.7% on Wednesday. The company’s market capitalization — the company’s value based on its shares — remains at about $2.6 trillion.
“Nvidia’s profit surge comes at a time when other big tech companies are investing heavily in AI,” Dario Perkins, managing director at TS Lombard Financial Group, wrote in an op-ed this week.
“This creates a cyclical dynamic where NVIDIA (and now the entire U.S. stock market) is dependent on continued large AI investments,” Perkins said. If the top five publicly traded companies, such as Amazon and Microsoft, pull out of their investments in NVIDIA, “we could have problems.”
Nvidia was once known for making graphics cards for computer games, but fortunately, these cards are perfectly suited to handle the computational load required for AI to perform tasks.
As a result, both Microsoft and Facebook’s parent company Metadata spend more than 40% of their hardware budgets on Nvidia gear.
Nvidia is now so close that a group of market watchers met at a bar last month to watch the company’s quarterly earnings report, though some later saw the meeting itself as a sell signal.
“NVIDIA has changed the technology and global landscape as its (graphics processing units) have become the new oil and gold for the IT industry. Their chips are driving the AI revolution and, for now, are the only choice,” Wedbush Securities analyst Dan Ives wrote in a recent note.
But growing concerns about a broader economic slowdown and new skepticism about AI’s timeline for results — essentially, how quickly the current investments flowing into AI will ultimately translate into clear use cases and increased profitability — have led to a sell-off in Nvidia’s stock.
“In my opinion, I don’t think AI will ever be able to rival the internet,” Daron Acemoglu, an economist at the Massachusetts Institute of Technology, told the Financial Times in an interview this week, calling the technology a “two- or three-trick horse.”
“AI has great capabilities, but it’s not yet pervasive enough to impact everything we do and create a lot of new things,” Acemoglu said. “It could happen, but when it does, we’ll probably call it a new technology. That’s another decade or so away.”
The skepticism coincides with new economic warning signals. In the United States, the labor market is starting to show clear signs of weakness after a hiring surge that accompanied the broad economic recovery from the coronavirus pandemic. In China, problems in the housing sector are starting to weigh on consumption. Oil prices, which tend to track global economic trends, have fallen to their lowest level in three years.
Meanwhile, two new reports released this week raise fresh questions about when AI investments will pay off.
“Investors are debating whether future revenues from big technology and cloud computing companies can justify the billions of dollars in capital spending being poured into artificial intelligence (AI),” analysts at BlackRock Investment Institute wrote.
A similar warning was sounded in comments from JPMorgan Asset Management, which said: “To realize the full benefits of AI infrastructure, companies will need to begin to significantly shift their focus from ‘training’ to ‘producing.'”
Further complicating things was a Bloomberg News report on Tuesday that the Justice Department has opened an antitrust investigation into Nvidia, which is expected to maintain at least 90% of the AI chip market share over the next two years.
Another factor is that Intel, once a US computer chip powerhouse, has seen its shares fall 54% this year and is at risk of being delisted from the Dow Jones Industrial Average, according to a Reuters report. Investors have blamed Intel for failing to fully capitalize on the AI boom, but broader concerns about the payoff are likely fueling the company’s losses.
Steve Sosnick, chief strategist at Interactive Brokers Financial Group, said in an email to NBC News that despite the stock’s rise, Nvidia is one of the most volatile stocks on the market and its price can fluctuate widely, both up and down.
“So investors who trust the company had better get used to volatility,” Sosnick wrote. “Investors love upside volatility (what we call ‘socially acceptable volatility’) but hate downside volatility. Unfortunately, one usually leads to the other.”
Tuesday’s selloff was far from a fatal blow to Nvidia’s shares, which have more than doubled to about $109 in 2024. The tech-heavy Nasdaq index is also still up 16% this year and is up nearly two-thirds since 2023.
Sosnick said much of the selling in Nvidia shares, which trade as NVDA, may ultimately be due to investment managers trying to consolidate the big gains the company’s stock has already seen this year.
“I think retail investors are understandably enthralled with NVDA, and many of them have made a lot of money. But institutional investors are more sober-minded and focused on securing profits later this year, which I think is putting pressure on the stock price,” Sosnick said. “They understand that no one goes bankrupt making profits.”
