Nvidia shares closed down 7% on Tuesday as a heavy sell-off in chipmaking stocks reignited ahead of several closely watched earnings reports from Big Tech companies this week. The Silicon Valley chipmaker, a dominant provider of the powerful processors needed for building artificial intelligence systems, has fallen more than 20% since briefly becoming the world’s most valuable publicly traded company last month, reducing its market capitalization by almost $750 billion.
Other chip stocks followed suit. Arm, the semiconductor designer that has also benefited significantly from investors’ enthusiasm for AI-related stocks this year, closed down 6% in New York. Despite these declines, both Nvidia and Arm are still more than double their value compared to the same time last year, driven by substantial capital spending by companies like Microsoft, Google, Amazon, and Meta to support AI infrastructure.
Ahead of Microsoft’s earnings report, traders expressed concerns that profit expectations for AI-involved companies might be too high and that capital spending could be outpacing returns. Microsoft’s stock fell in after-hours trading following its announcement that cloud growth was slowing as AI demand exceeded its capacity. In contrast, Samsung Electronics reported it expected sales of its AI memory chips to more than triple in the second half of the year compared to the first, pushing its shares in Seoul up more than 2%.
“We’ve seen money flow out of Big Tech, mostly because they have had an incredible run-up, and that naturally allowed for some sell-off,” said Daniel Newman, chief executive of The Futurum Group. “Sector rotation, continued economic uncertainty, elections, geopolitics, and concerns around China” contributed to Nvidia’s decline.
The tech-heavy Nasdaq Composite index ended 1.3% lower, while the benchmark S&P 500 eased 0.5%. Shares in chipmakers AMD and Intel, which report earnings this week, also traded lower, dropping nearly 1% and 2.3%, respectively.
“There’s a lot of angst in the market ahead of reporting,” noted Emmanuel Cau, head of European equity strategy at Barclays. Apple, Amazon, and Meta are also set to publish their quarterly numbers later this week. Investors are cautious ahead of a busy few days for central banks, with interest rate decisions by the Bank of Japan, US Federal Reserve, and Bank of England all due.
Investors have been selling tech companies in recent weeks, pushing the Nasdaq down about 8% from its peak in mid-July. The index suffered its worst day since 2022 last week after results from Alphabet and Tesla sparked concerns about the size and timing of likely returns from the substantial investments in AI by the so-called Magnificent Seven tech companies. Despite recent pullbacks, the Nasdaq and the broader S&P 500 are still ahead by roughly 14%.
“Market participants used this morning’s equity gains to unload stocks in the afternoon ahead of pivotal announcements from the Fed and Bank of Japan tomorrow — and four of the Mag Seven reporting this week,” said José Torres, senior economist at Interactive Brokers. “Bullish players will be looking for optimistic projections on the future of AI in the Mag Seven earnings calls.”
