On Tuesday, September 3, the first trading day of September, which was the long weekend of the US stock market, 'disastrous' is a quite accurate adjective to describe it, and 'big drop' can be quoted as the leading decline of the day by Nvidia and a group of chip stocks.

$NVIDIA (NVDA.US)$ Opening with a gap down of 2.8%, and then falling all the way, closing down 9.5%, the stock price is pushing down to $108, the lowest in three weeks since August 9, and the market value has shrunk by $279 billion, further away from the $3 trillion mark. $T-REX 2X LONG NVIDIA DAILY TARGET ETF (NVDX.US)$ A drop of about 19%.

It is worth noting that after the US stock market post-market trading on Tuesday, September 3, Bloomberg cited informed sources as saying that the US Department of Justice has issued subpoenas to Nvidia and some third-party companies, seeking evidence of Nvidia's violation of antitrust laws. Antitrust officials are concerned that Nvidia will make it harder for customers to switch to other artificial intelligence (AI) computing vendors, and that buyers who do not specifically use their AI chips will be penalized. This news indicates that US regulators have stepped up their investigation of Nvidia's alleged monopoly in the computing services market. After the news came out, Nvidia fell further in post-market trading, with a drop exceeding 2% at one point.

As the industry benchmark overnight, $PHLX Semiconductor Index (.SOX.US)$ The stock market fell 7.8%, dropping below the key psychological level of 5100 to 4800 points, the lowest level in three weeks since August 12th. The ETF SMH, which tracks this benchmark, also fell 7.5%, marking the largest single-day decline in over four years.

Other chip stocks are also not doing well. $Intel (INTC.US)$ It fell nearly 9% from the one-month high. $Advanced Micro Devices (AMD.US)$ It fell nearly 8% to a three-week low; the world's largest chip foundry. $Taiwan Semiconductor (TSM.US)$ Fell 6.5%, another major wafer foundry leader $GlobalFoundries (GFS.US)$ Fell 8.6%; Chip equipment manufacturer $KLA Corp (KLAC.US)$ Fell 9.5%, $Applied Materials (AMAT.US)$ Fell 7%, $ASML Holding (ASML.US)$ Decreased by 6.5%; $Qualcomm (QCOM.US)$ Dropped by 6.9%, will release its third-quarter report on Thursday. $Broadcom (AVGO.US)$ falling over 6%, $Micron Technology (MU.US)$ Dropped by about 8%; Last Thursday, Nvidia, which had risen against the market decline. $Arm Holdings (ARM.US)$ Also fell nearly 7%.

One of the reasons for the sharp decline in chip stocks: poor manufacturing, falling in line with the overall market downturn ahead of the high-profile employment report.

Market analysis indicates that firstly, the sharp drop in chip stocks today is following the overall downturn in the US stock market.

US stock indexes suffered their biggest decline since August 5th, when strong concerns about the US economic recession were sparked by the July non-farm employment report. This week, two August manufacturing data continued to contract, further raising investors' worries about the US economic slowdown and triggering a sell-off in the stock market.

Technology stocks gathered.$NASDAQ 100 Index (.NDX.US)$The decline expanded to 3%, and the Nasdaq also fell more than 3% to its lowest level since August 12.$S&P 500 Index (.SPX.US)$The market fell more than 2% to its lowest level since August 14, with the Dow Jones Industrial Average, dominated by blue-chip stocks, falling 1.5% or more than 620 points, below the 0.041 million point level reached on August 22. The VIX, a measure of short-term volatility in the S&P, rose more than 40% to approach 22.

According to Barron's, citing Dow Jones market data, the 'Big Seven' tech stocks plunged 7.6% at one point during Tuesday's session, marking the largest percentage decline since April 19th.

This sell-off appears to be part of sector rotation rather than driven by specific news from the chip industry. September is often a challenging month for the stock market, and investors seem to be selling stocks before a series of economic data releases.

Furthermore, after Nvidia released its earnings report after the market closed last Wednesday, its stock price continued to decline. This highlights concerns about the company's high valuation, slowing revenue growth, and the sustainability of the overall AI chip investment frenzy, which in turn weighs on chip and AI stocks.

Bill Blain, founder of Wind Shift Capital and senior strategist, said that the decline in Nvidia's stock price is sending a strong sell signal to US stock investors, and its significant previous gains and massive valuation may indicate that the 40-year market cycle has peaked.

"I just found the best reason to sell Nvidia and confirm that we are at the top of the market. What will happen next? As countries vie for strategic resources, inflation and interest rates are poised to rise in the next twenty years, and the global commodities supercycle is about to weigh on stocks."

Why is NVIDIA weighing down chip stocks: Its financial report raises doubts about the sustainability of the massive investment in AI hardware.

On one hand, although NVIDIA achieved solid performance in the second fiscal quarter of the 2025 fiscal year, with doubled revenue and EPS growth and reaching a historical high in revenue, its revenue guidance for the next quarter is $32.5 billion.

This represents a slowdown in year-on-year revenue growth from triple-digit percentages in multiple quarters to nearly 80%, which some interpret as a sign of cooling demand for its AI chips. This hit the stock prices of chip manufacturers that provide memory and other components for NVIDIA after the financial report.

In the past year, chip stocks led by NVIDIA have been strong performers, mainly because people optimistically believe that the new trend of artificial intelligence will require companies to purchase more semiconductors and memory to meet the increasing computational requirements of AI applications.

However, Paul Nolte, Market Strategist and Senior Wealth Manager at Murphy & Sylvest Wealth Management, pointed out that it is not surprising that NVIDIA and other popular AI stocks have temporarily taken a back seat, after all, the return on investment of all these expenditures is still a big question. The decline in chip stocks indicates skepticism about the sustainability of investing a massive amount of money in AI computing hardware.

"Driven by heavy investments in AI and chips by companies like Microsoft and Alphabet, NVIDIA and other chip manufacturers have seen a surge in revenue. However, the revenue growth they gain from AI spending is still relatively small, and people are concerned about how long this situation can continue."

This also makes Broadcom's financial report after Thursday's market close widely watched as an opportunity to observe whether market enthusiasm for the AI trend is waning.

Why did NVIDIA's second quarter report, which was solid, decline for multiple days: analysts say it is "coping with the pains of growth".

Meanwhile, for Nvidia itself, the stock price has dropped by 14% in less than a week from the closing price before the release of the August 28th financial report, mainly because although its financial report was stable, it was not outstanding, at least not good enough for Wall Street with very high expectations.

Ken Mahoney, CEO of asset management firm Mahoney Asset Management, stated that the "angry reaction" to Nvidia's financial report shows that after witnessing a more than 700% surge in its stock price since early 2023, investors have become accustomed to Nvidia's financial reports not only exceeding market expectations, but also "completely destroying" them, which makes Nvidia's stock price "perfectly priced" with limited room for error.

Furthermore, Nvidia's stock price is currently well above the 200-day moving average level, and "the stock price is quite high in the long run." In addition, after the expected interest rate cut by the Federal Reserve in September, there may be a market dynamic of "buy the rumor, sell the fact", which is not favorable for Nvidia with a high valuation.

"One of the issues that investors and analysts will focus more on in the coming quarters is the gross margin. The non-GAAP gross margin in the second quarter decreased by more than 3 percentage points compared to the previous quarter, and it is expected to further decline in the second half of the fiscal year. Currently, profit margins are under pressure due to the start of volume production by Blackwell."

As we move forward, Nvidia's overall revenue growth will begin to slightly slow down, as the year-over-year challenges for each subsequent quarter are significant. It is extremely difficult to maintain revenue growth of 100% or more in the long term.

NVIDIA's ability to achieve these goals will depend on the production growth of Blackwell, and the mass production of this super chip has been delayed by one quarter, starting in the fourth fiscal quarter of this year and continuing until the 2026 fiscal year.

During the conference call, the management expects Blackwell's revenue to reach several billion dollars in the fourth fiscal quarter, and this number is expected to grow significantly next year. However, analysts did not receive as much information as they hoped for, which may be one of the reasons why the stock is under pressure.

Mainstream analysts still hold a positive outlook on NVIDIA's long-term prospects. Musk hinted that he will continue to buy a large amount of AI chips.

However, despite NVIDIA's recent stock price decline, most analysts still maintain a 'buy' rating on it, and the target stock price represents a certain upside, and most people still have a positive outlook on NVIDIA's 'long-term prospect'.

For example, Tesla CEO Musk warned this week that despite recent concerns amongst investors, the demand for NVIDIA's existing product line of chips remains strong. His AI startup company xAI successfully launched the Colossus AI training infrastructure in just 122 days, powered by 100,000 NVIDIA H100 GPUs, and will become the 'world's most powerful AI training system', which will double in scale within a few months with the integration of the NVIDIA H200 chip.

The Motley Fool, a US stock research website, believes that the selling investors seem to have overlooked that outside the data center, every business line of NVIDIA has achieved year-on-year growth, even the game department, which was once struggling. In contrast, AMD's second-quarter game chip sales fell by nearly 60% year-on-year, indicating that even in a market where competitors are in trouble, NVIDIA can still maintain strong demand:

Furthermore, in terms of price-earnings ratio (P/E ratio), NVIDIA's valuation does not seem too high compared to its main competitors AMD and Intel.

The financial report also demonstrates the business strength of Nvidia, leading us to believe that Nvidia will capture 70% to 95% market share in the AI GPU market. The AI industry is expected to grow from $136 billion in 2020 to $826 billion in 2030, and long-term investors can enjoy the industry's growth for many years and gain returns from holding Nvidia stocks.

Editor/Somer