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Nvidia sets a new record losing $279 billion in one day. Ouch.
Shares of AI heavyweight Nvidia tumbled 9.5% on Tuesday in the deepest ever single-day decline in market value for a U.S. company in history, as investors softened their optimism about artificial intelligence in a broad market selloff following tepid economic data.
The Dow Jones Industrial Average fell 626.15 points, or 1.51%, to end at 40,936.93. The S&P 500 slid 2.12%, closing at 5,528.93. The Nasdaq Composite dropped 3.26% and closed at 17,136.30. All three indexes notched their worst days since the global sell-off on Aug. 5 and this caused Europe to follow suit and open lower this morning.
Since the US open some of the losses have been pared although most European markets are still heavily down on the day. Traders around the world are unsure of what to do when America is in a selling mood so many will sit tight for now.
Nvidia lost $279 billion in market capitalisation, a major indication that investors are becoming more cautious about emerging AI technology that has fuelled much of this year'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 last Wednesday gave a quarterly forecast 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 Reuters CEO Pat Gelsinger and key executives are 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.
Brent front-month futures are down 0.6% at $73.28 a barrel, while West Texas Intermediate is down 0.65% at $69.98. Analysts at Citi say Brent could average around $60 per barrel in 2025 if OPEC+ doesn't commit to extending current output cuts indefinitely, amid expected reduced demand.
Were Brent prices to fall into the $60s, financial markets could drive even lower, possibly to $50 per barrel, they add.
After waning from $90 a year ago, despite tensions in the Middle East and Ukraine, the Citi team say that the market now recognises geopolitics does not necessarily lead to reduced production or transit issues.
On a separate note, Goldman Sachs has also highlighted that AI is increasingly used by energy firms and could reduce oil prices over the next decade. AI may cut shale production costs by 30%, lowering prices by $5/barrel, and increase oil reserves by 8-20%, analysts say.
Though AI may modestly boost oil demand by 0.7 million barrels a day, this pales compared to negative demand impacts from electric vehicles (EVs) and falling natural gas prices.
In the UK this week the data has continued to look promising. The FTSE 100 hasn’t necessarily reacted accordingly, but this can take time when US markets are overriding sentiment anywhere else.
Retail sales in the United Kingdom rose 0.8% on a like-for-like basis in August 2024 from a year ago, accelerating from a 0.3% gain in July to the highest level in five months according to the latest BRC retail sales monitor.
The S&P Global UK Composite PMI rose to 53.8 in August of 2024 from 52.8 in the previous month, revised higher from the preliminary estimate of 53.4 and sharply above the initial market expectations of 52.9.
This reflected the tenth consecutive expansion in British services activity, at the sharpest pace since April, amid upturns in both services (53.7 vs 53.5 in July) and manufacturing (52.5 vs 52.1). The aggregate level of new orders supported growth across the British private sector, with service providers expanding in line with those across Europe, while the robustness of factory demand significantly outperformed the contracting momentum for counterparts within the Eurozone.
In the meantime, surveyees noted a sustained increase in employment levels. On the price front, firms reported the smallest increase in input costs since November of 2020. All of this is positive and points to economic growth amid falling inflation.
On the continent, the HCOB Eurozone Composite PMI was revised slightly lower to 51 in August 2024 from a preliminary of 51.2, compared to 50.2 in July. The reading continued to point to the strongest performance in private sector activity in three months, driven by a quicker upturn in services (52.9 vs 51.9) while manufacturing remained weak (45.8 vs 45.8).
This is the sixth straight month of expansion, the longest streak in over two years, but also highlights economic fragility in the eurozone as new orders, employment and business confidence deteriorated.
On the other hand, there was a marked easing of cost pressures, with input prices rising at the softest pace in 2024 so far. France and Spain were major forces behind August’s accelerated euro area expansion and improved growth rates were also seen in Ireland and Italy, while Germany bucked the trend by posting a second successive decline in private sector business activity.
The main number of the week is still to come in the form of non-farm payrolls on Friday. With investors now mostly expecting the Federal Reserve to cut interest rates by 25 basis points in its September 18th policy announcement, it will be interesting to see how the market reacts to this month's employment data (this is what sparked last month’s collapse).
Due to soft data from the manufacturing sector on Tuesday and the slight uptick in unemployment, a minority of traders are still looking for a 50 basis point cut, the odds of which have risen to 37% from 30% this week.
"There’s concern about what the job numbers are going to show, about seasonality," warned Steve Sosnick, a market strategist at Interactive Brokers.
Nvidia's record one-session loss in stock market value was greater than the $232 billion decline suffered by Facebook-owner Meta Platforms on Feb. 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 $70.35 billion from about $68 billion 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 but this was mostly triggered by the global chip company sell off.
The rest of the week will no doubt continue to be volatile but the traders at TPP will continue to look for opportunity.
