The US stock market has seen its worst run since October 2022, with global chip giant Nvidia seeing stocks fall by 10% on Friday [April 19 2024]. Investors have been looking to ditch riskier assets ahead of the announcement of Big Tech earnings starting this week, as well as other key economic readings.
In a single day, the AI chipmaker lost an estimated US$200bn (£161.7bn) in value, with the company’s share valuation hitting a two-month low of US$762 (£616) a share.
One of the key triggers for the nosedive in Nvidia shares was that Super Micro Computer (SMCI), a major vendor for the manufacture of Nvidia-based servers, broke from the pattern of recent years and didn’t report its preliminary earnings data. This data is now expected later in the month.
This led to a 23% drop in share price in one day for SMCI. The company has benefited from the massive influx in investment into AI firms, due to the high demand for Nvidia-based computers, which are used to build highly sought-after AI programmes like ChatGPT.
The 10% drop marked Nvidia’s worst single-day fall in share prices since the early onset of Covid-19 in March 2020.
Due to Nvidia’s prominent position within the AI space, decline in investor expectations or other key market trends will hit the chipmaker hard.
Despite the dramatic fall, Nvidia is still expected to report solid earnings, with Goldman Sachs describing it as “the most important stock on planet Earth,” with shares up 60% since the start of January, despite the 20% fall from its record high.
PCE inflation and GDP data are also expected this week.
“It’s a rough day for tech stocks,” said Kevin Gordon, a senior investment strategist at Charles Schwab. “Anything that was doing well earlier this year is unwinding, but banks and energy are doing well with [defensive] staples.”
Microsoft, Alphabet and Meta will all be reporting Q1 earnings, whereas Nvidia’s Q1 results are expected in late May.
The broader selloff of tech shares follows AI companies seeing a significant rally in stocks in recent months.
Increased scrutiny over tech stocks is expected, following a bullish approach from investors towards AI companies and high earnings expectations.
Whether or not the AI bubble is expected to last and if major corporations’ investments in AI has paid off will be among chief concerns for analysts monitoring the market this week.
Investors will be paying particular attention to the Magnificent Seven of stocks, namely Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Meta Platforms and Tesla.
Nigel Green, CEO of deVere Group, an independent financial advisory firm, said: “Companies at the forefront of AI innovation are not merely reacting to market trends but actively shaping the future.
“Their value lies not only in their current market performance but in their potential to redefine entire sectors and create new avenues of growth.”
Despite the short-term dip in tech and AI stocks, Green added that this period actually represents a good buying opportunity for investors looking to “position themselves strategically for the future.”
