Nvidia’s value drops by $900 billion | The Arkansas Democrat-Gazette

At first glance, Nvidia Corp.’s $900 billion sell-off since its record high in June would suggest that the AI ​​spending boom that got it there is winding down. But the subtext tells a much less grim story.

Microsoft Corp., Amazon.com Inc., Alphabet Inc. and Meta Platforms Inc. — which together account for more than 40% of Nvidia’s revenue — have all said they will continue to invest billions in AI infrastructure. Meanwhile, Super Micro Computer Inc., which makes data center servers used in AI, told investors it expects to generate up to $30 billion in sales over the next year, topping analysts’ expectations. Yet Nvidia, a major beneficiary of AI spending, has seen its shares fall 27% in less than two months.

“Nobody has pulled the numbers down and said something is wrong with AI or we’re taking a break from AI,” said Rhys Williams, chief strategist at Wayve Capital Management LLC. “People are just very nervous.”

Investors have been pulling out of pricey tech stocks for weeks, instead buying everything from small-cap stocks to value stocks, utilities and real estate. Last week’s weaker-than-expected jobs report further fueled fears that the U.S. economy could slow faster than expected.

That uncertain macro backdrop could add to the jitters and weigh more heavily on Nvidia and its peers than quarterly earnings, Williams said. The downward move was exacerbated by an unwinding of global carry trades, which many on Wall Street have cited as a trigger for the recent spike in market volatility.

At the same time, big tech companies largely failed to convince investors during earnings season that their AI spending translates into higher sales and higher profits. “We haven’t seen a way to monetize AI yet, so the payback is unclear. The question is, how long can that last?” said Srini Pajjuri, managing director and senior research analyst at Raymond James.

The lack of catalysts ahead of Nvidia’s earnings report in late August means the narrative for AI chipmakers likely won’t change in the coming weeks, according to Pajjuri. “That makes it difficult for these stocks to operate right now,” he said.

Nvidia has also faced other challenges recently. The company has hit engineering hurdles in developing two new advanced chips, Bloomberg reported this week, while some investors are also concerned about the potential for more competition. Many of Nvidia’s biggest customers, including Alphabet and Microsoft, are developing their own chips for use in AI computing. While it could be years before those products are ready, they could grab market share.

Nvidia isn’t the only AI-related name to be crushed in a widespread pullback. The Philadelphia Semiconductor Index is down more than 25% from its July peak. And despite Super Micro Computer’s strong outlook, its shares fell 20% Wednesday after investors were disappointed with its gross margin number.

Nvidia’s stock has doubled in value this year, even after a recent decline. There are still signs of solid demand for AI chips in the near term, and Wall Street is largely bullish on the technology. Advanced Micro Devices Inc. shares surged after the company reported financial results in late July that included an upbeat revenue forecast that hinted at increased demand for AI accelerators.

The stock was trading at about 44 times forward earnings in mid-June, a significant premium to the Nasdaq 100, which was trading at about 26 times on the same day. After a recent sell-off, the chipmaker is trading at about 30 times forward earnings, potentially making it more attractive again for long-term investors.

“Nothing has fundamentally changed for these companies, except they’ve probably gotten a little bit ahead of themselves,” said Ken Mahoney, president and CEO of Mahoney Asset Management.

Information for this article provided by Ryan Vlastelica and Subrat Patnaik of Bloomberg News.