NVIDIA's stock price plummeted due to concerns about AI, setting a record of $279 billion. The Philadelphia Semiconductor Index had its worst day since March 2020, and NVIDIA's steady earnings were not enough to alleviate people's concerns about artificial intelligence.
Just four weeks after the global stock market suffered a sharp decline as investors fled risk assets due to 'Black Monday', NVIDIA, once the world's most valuable publicly traded company, sparked another wave of 'sell-off' in the US stock market. In regular trading on the US stock market, NVIDIA's stock price fell nearly 10%, evaporating $279 billion in market value. If we include a temporary 2% decline in after-hours trading, its market value has evaporated by approximately $300 billion, equivalent to the combined market value of American chip giants AMD (AMD.US) and Intel (INTC.US).
NVIDIA's stock price has once again plummeted, reigniting investors' excessive concerns about the AI frenzy and the widespread reduction in acceptance of the 'AI grand narrative logic'. More and more investors may think that they were too optimistic about the AI profit prospects or 'AI monetization prospects'. Now, they are finally returning to rational thinking instead of blindly following the 'irrational prosperity' and blindly being bullish on chip stocks like NVIDIA that have benefited from the AI boom.
As of the close of trading on Tuesday, NVIDIA's stock price plummeted by 9.53%, wiping out a market value of up to $278.9 billion in a single day, making it the largest single-day market value loss in the history of US stocks. Since the announcement of its strong growth performance and the failure to meet market expectations for performance outlook, the stock has fallen by about 14% in three trading days, indicating that NVIDIA's steady performance data is not enough to alleviate the market's pessimistic expectations for AI profit prospects.
NVIDIA can be said to have single-handedly brought down the entire chip sector, which is crucial to the rise of the US stock market. The 30 component companies of the Philadelphia Semiconductor Index, known as the 'global benchmark for chip stocks,' saw their stock prices fall by at least 5.4%, with ON Semiconductor, KLA Corp, and Monolithic Power Systems experiencing declines of over 9%. The Nasdaq 100 Index, which includes numerous technology giants such as NVIDIA, Microsoft, Google, and Amazon, also suffered a heavy blow, plummeting nearly 3.2%.
For NVIDIA, the situation is even worse as the US Department of Justice issued subpoenas to NVIDIA and several other companies, demanding specific evidence of NVIDIA's violation of antitrust laws. Subsequently, NVIDIA's stock price continued to decline during post-market trading on the US stock market, falling an additional 2% on top of the 9.5% drop.
Unable to escape the 'September curse'? The first trading day of September in the US stock market ended in defeat!
For the U.S. stock market, September can be said to be a turbulent month in history. The "September Curse" has long shrouded the U.S. stock investors—since 1950, the S&P 500 index and the Dow Jones index have shown the most significant declines in September, but this time the dismal start of the first trading day in September has other substantial reasons.
The worries about the growth of the Asian economy have shaken the commodity markets from oil to copper. The latest U.S. manufacturing data has been very weak, but the manufacturing data shows an increase in payment prices, which is a potential worrying sign for inflation hawks. The market fears that the Fed's rate cut may not reach the widely expected 100 basis points. In addition, weak economic data, pessimistic financial reports from tech giants, and their massive AI spending scale suggest that the promise of AI's reshaping of global economic growth and the prospect of "AI monetization" seem increasingly bleak. These latest signals can be said to have played a most critical catalytic role in the major collapse of U.S. stocks caused by semiconductor stocks, making it difficult to justify the high valuations of semiconductor stocks and the entire U.S. stock market.
These views were also expressed by the Morgan Stanley asset management department and the investment research department of BlackRock. Michael Chui, market and investment strategy chief of Morgan Stanley's asset management department, warned that the massive infrastructure spending on GPUs and other AI brought by artificial intelligence would be unreasonable unless there is a substantial increase in demand for AI services from companies outside the tech industry. For Jean Boivin, head of the investment research institute at BlackRock, the takeoff of artificial intelligence "requires patience," emphasizing that this is a "multi-year, not multi-quarter" process.
Of course, these warnings are not new. The stock price of Alphabet (GOOGL.US) was heavily hit in July when the company reported a sharp increase in AI-related spending, but the profits from AI did not increase accordingly, prompting investors to withdraw from large tech stocks. However, when the latest AI monetization warning was issued, the market had rebounded to near the historic highs set at the end of August. This is mainly because investors believe that the U.S. economy will not collapse before the Fed begins its rate cut cycle later this month, but the latest disappointing U.S. manufacturing data disrupted this optimistic expectation.
"Will we really continue to adhere to the 'soft landing' that the Fed expects? Or will we get some sort of report later this week showing a substantial increase in unemployment?" said Brian Meath, client portfolio manager at Zacks Investment Management. "This is where you start to see a lot of volatility overlap, hitting the highest valuations first, people start looking for actual profit growth, actual profits on the balance sheet. Most importantly, really stable forward-looking performance guidance."
The benchmark index for U.S. stocks—the S&P 500 index—fell by more than 2%, with all sectors except two seeing significant declines. The Chicago Mercantile Exchange volatility index (VIX index) rose above 20 points. Similar to early August, the selloff extended to other assets. Oil prices fell sharply by 4%, U.S. Treasury yields declined, and investors sought safe havens.
The losses in the semiconductor sector were the most widespread. The Philadelphia Semiconductor Index recorded its largest decline since March 2020, with Intel's stock price falling by 8.8% so far this year, making it the second worst performer in the Philadelphia Semiconductor Index. Semiconductor equipment manufacturer Applied Materials' stock price plummeted by 7%. The stock price of the world's largest semiconductor foundry, Taiwan Semiconductor, also dropped by roughly the same magnitude.
Alphabet, Microsoft, and Apple's stock prices fell by at least 1.9%, as this painful selloff in tech stocks and investors' pessimistic expectations for "AI monetization" spread to the world's largest tech companies seeking to reshape the economy with artificial intelligence.
"Apart from large tech companies buying Nvidia GPUs in large quantities, we have not yet seen the diffusion of AI in the economy," said Paul Nault, a market strategist and senior wealth manager at Murphy & Sylvester Wealth Management. "There is still significant uncertainty about the return on investment of all this AI spending. If you go back to the internet age, the first winners on the internet were not always the ultimate winners. In terms of the still high valuations, we have not reached the point where I want to try a buy-on-the-dip strategy."
The market crash on "Black Monday" on August 5th made global investors nervous, but the US stock market rebounded almost immediately and rose more than 5% by the end of the month. Nvidia itself was one of the leaders in this big rebound, and with the Fed's clear intention to cut interest rates, the scope of the rebound has become more widespread.
Recently, a series of key economic data promised on the calendar, especially the US labor market report on Friday, will reinforce bets on the Fed's interest rate cut path. However, traders will have to wait three weeks for formal confirmation of the interest rate cut.
Economists generally expect that US nonfarm payroll employment in August is expected to rebound to 0.163 million people, and the unemployment rate may drop from 4.3% to 4.2%, the first decrease since March. Improved employment data will ease expectations of a significant interest rate cut by the Fed in the coming months, which could reduce the bet on a rate cut by 100 basis points to around 75 basis points by 2024. This will help the recent rebound of the US dollar to continue to rise, pressuring global stock markets. Some analysts also believe that if the US labor market worsens unexpectedly compared to economists' expectations, it may ultimately prompt the Fed to cut interest rates by 50 basis points in September.
"With the stock market rebounding significantly from the lows in August, we have entered a well-known seasonally weak period, and it is not surprising to see some risk-off behavior as investors wait for more data or clearer information," said Christopher Jacobson, Co-Head of Derivative Strategy at Susquehanna International Group.
Adding insult to injury! Nvidia receives subpoena from the US Department of Justice
On Tuesday, it was reported that Nvidia's stock price continued to fall in post-market trading in the US after the company received a subpoena from the US Department of Justice as part of an antitrust investigation, falling more than 2%.
According to reports, the US Department of Justice's investigation has not yet reached the stage of formal prosecution, and the agency is asking Nvidia if it has made it more difficult to switch to other AI chip suppliers. It is estimated that Nvidia has a market share of at least 80% in the data center AI chip market.
NVIDIA's strong rise in the chip industry in recent years is directly related to its dominant position in the data center artificial intelligence chip field. And this dominant position is closely related to the powerful moat brought by NVIDIA's CUDA platform. Competitors AMD and Intel started to take the data center artificial intelligence chip field seriously much later than NVIDIA.
About ten years ago, NVIDIA developed a programming language called CUDA for its chips. CUDA is an important tool that engineers must master to train high-level artificial intelligence models, such as the core model of ChatGPT. CUDA can be said to be the platform that ChatGPT and other generative AI applications rely heavily on, and its importance is on par with the hardware architecture. It is crucial for the development and deployment of large AI models. With its high technical maturity, absolute performance optimization advantage, and extensive ecosystem support, CUDA has become the most commonly used and widely popular collaborative platform in AI research and commercial deployment.
The core logic behind NVIDIA's stock price trend in the next 12 months, which street's top investment banks still insist on being bullish on, is the combination of CUDA's ecosystem barrier and high-performance AI GPU. Among them, Bank of America is optimistic that NVIDIA's stock price will rise to $150 (compared to its close at $108 on Tuesday). Wall Street analysts generally believe that global enterprises still have strong demand for NVIDIA's H100/H200 AI GPU, and the next generation of AI GPU based on the Blackwell architecture is expected to bring huge revenue contributions. The combination of the "CUDA software and hardware collaborative platform + high-performance AI GPU" forms NVIDIA's unparalleled moat.
NVIDIA's largest customer base consists mainly of cloud computing services and internet giants, including Microsoft, Alphabet, the parent company of Facebook (Meta), and Amazon AWS. And with NVIDIA's AI GPU becoming the hottest hardware globally, the company has also released new AI enterprise software subscriptions and marketed its networking products as important supplements to fully utilize the powerful performance of its AI GPU. NVIDIA is trying to position itself as a "comprehensive AI solutions provider."