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Why Nvidia shares cool off, resulting in its largest on-record market cap wipe

Mar 09, 2024 07:10 AM IST

Nvidia shares face an unexpected 5.5 per cent drop, erasing $128 billion in market value.

Nvidia on Friday, saw an unexpected 5.5 per cent drop in its stocks – the largest since May. This comes after shares of the poster child of the artificial intelligence frenzy have surged by 77 per cent this year, following triple-digit growth last year.

The United States has asked Nvidia Corp and its rival AMD to stop sending Artificial Intelligence chips to China.(Reuters)
The United States has asked Nvidia Corp and its rival AMD to stop sending Artificial Intelligence chips to China.(Reuters)

Nvidia market value erased around $130 billion, marking one of the biggest single-day losses in US stock market history.

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Despite the setback, Nvidia’s strong performance in 2024 positions it well above its last stock split level, sparking speculation about another split.

The company’s stock surge is driven by optimism about the demand for its AI computing chips and has made it the third-largest company in the S&P 500, after Microsoft Corp. and Apple Inc.

ALSO READ- Nvidia CEO thinks AI would kill coding, says ‘everybody is now a programmer’

Why Nvidia shares cooled?

On Friday, the S&P 500 and Nasdaq retraced from earlier record highs, influenced by a downturn in high-performing chip stocks. The mixed labour market report, revealing more new jobs than anticipated but accompanied by a rising unemployment rate, added to the market’s uncertainty.

Nvidia shares faced a decline amidst broader tech pressure, with the Nasdaq 100 dropping 1.5 per cent, breaking the chip darling’s six-day winning streak.

The overall sentiment on Wall Street suggested concerns about an overbought market, fuelled by a nearly 35 per cent surge in the S&P 500 since the beginning of last year. Analysts, including Bank of America Corp.’s Michael Hartnett, express caution, saying “abnormal gains” in “abnormal times,” leading to stretched positioning and expectations for a potential rate cut.

ALSO READ- How to buy Nvidia stock in India?

The technology sector’s woes extended to Tesla Inc., witnessing a 13 per cent slump, and Broadcom Inc., which tumbled due to sluggish chip sales.

Broadcom, despite reporting better-than-expected results, saw a 7 per cent decline as its revenue forecast for the upcoming year slightly missed analysts’ expectations. Additionally, Costco Wholesale faced a 7.6 per cent drop following lower-than-forecasted revenue for the latest quarter.

ALSO READ- AI could pass any human exam in 5 years, clear medical tests: Nvidia CEO

How stock markets performed on Friday?

Despite initially climbing on mixed US job market data, the S&P 500 retreated by 0.7 per cent from its previous day’s all-time high. The index’s trajectory shifted after Nvidia experienced the unusual decline.

In summary, the S&P 500 concluded the day down 33.67 points at 5,123.69. The Dow dipped 68.66 to 38,722.69, and the Nasdaq retreated 188.26 to 16,085.11.

(Inputs from wires)

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