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Nvidia shares closed down 7% on Tuesday as heavy selling in semiconductor manufacturing stocks flared up ahead of a slew of high-profile earnings reports from big technology companies this week.
Shares in the Silicon Valley chipmaker, a major supplier of powerful processors needed to build artificial intelligence systems, have fallen more than 20 percent since it briefly became the world’s most valuable publicly traded company last month, wiping about $750 billion from its market capitalization.
Other semiconductor stocks followed suit, including Arm Inc., the chip designer that has been a big beneficiary of investor enthusiasm for AI stocks this year, which closed down 6% in New York.
Both Nvidia and Arm are still more than double in value compared to the same time last year, driven by a flurry of capital spending by companies including Microsoft, Google, Amazon and Meta to build the technological foundations of AI.
Ahead of Microsoft’s earnings report, traders were concerned that AI companies’ profit expectations were too high and that capital spending was far outstripping profits. Microsoft shares fell in after-hours trading after the report.
“We’ve seen capital flow out of big tech companies, and I think that’s primarily because they’ve been through some incredible rallies, and of course that’s created some room for some selling,” Daniel Neumann, CEO of Futurum Group, told the Financial Times. “Sector rotation, continued economic uncertainty, concerns around the election, geopolitics and China” all contributed to Nvidia’s decline.
The tech-heavy Nasdaq Composite Index fell 1.3%, while the S&P 500 Index dropped 0.5%. Shares of chip makers AMD and Intel, which report earnings this week, also fell, dropping about 1% and 2.3%, respectively.
“There’s anxiety in the market ahead of earnings reports,” said Emmanuel Cau, head of European equity strategy at Barclays. Apple, Amazon and Meta are also due to report quarterly results later this week.
He added that investors were also turning cautious ahead of a busy few days for central banks, with interest rate decisions scheduled by the Bank of Japan, the US Federal Reserve and the Bank of England.
Investors have sold off tech companies in recent weeks, with the Nasdaq down about 8% from its mid-July high. The Nasdaq index suffered its worst day since 2022 last week as earnings from Alphabet and Tesla raised investor concerns about the size and timing of returns on the so-called “Magnificent Seven” tech companies’ massive investments in AI.
Artificial intelligence stocks have been driving the stock market’s rally this year, and despite recent declines, the Nasdaq and S&P 500 indexes are still up about 14%.
“Market participants took advantage of this morning’s rally to sell stocks in the afternoon ahead of key announcements from the Fed and Bank of Japan tomorrow, as well as four of this week’s Mag Seven,” said Jose Torres, senior economist at Interactive Brokers.
“Bullish investors will be looking for positive outlook for the future of AI in Mag Seven’s earnings report.”
