NVIDIA's market value evaporated nearly $300 billion! Equivalent to the market's growing suspicion of "AI narrative" for AMD + Intel

Just four weeks after the global investors fled from risky assets due to "Black Monday" in the US stock market, the chip giant NVIDIA (NVDA.US), which once topped the list of "the world's highest market value listed companies", triggered another wave of "sell-off in the US stock market". NVIDIA's stock price fell nearly 10% in regular trading on the US stock market, with a market value evaporating by $279 billion. If we include the post-market drop of up to 2%, its market value has evaporated by approximately $300 billion, which is roughly equivalent to the combined market value of the US chip giants AMD (AMD.US) and Intel (INTC.US).

NVIDIA's stock price plummeted again, reigniting investors' concerns that the frenzy over artificial intelligence has become irrational, as well as concerns about the widespread reduction in investors' acceptance of the "grand narrative logic of AI" - perhaps more and more investors are starting to think that they were too optimistic about the profit prospects of AI or the "monetization prospects of AI". Now, they are finally starting to think rationally, rather than blindly following the "irrational prosperity" and mindlessly bullish on chip stocks benefiting from the AI boom like NVIDIA.

As of the close of the US stock market on Tuesday, NVIDIA's stock price plummeted by 9.53%, wiping out a staggering $278.9 billion in market value in a single day, marking the largest single-day market value loss in the history of US stocks. Since the announcement of its still strong growth performance data, and the performance outlook failed to meet the market's highest expectations, the stock has plummeted by about 14% over three trading days, indicating that NVIDIA's solid performance data is not enough to alleviate the market's pessimistic expectations for the profit prospects of AI.

NVIDIA can be said to have single-handedly brought down the entire chip sector, which is crucial to the rising trend of the US stock market. The Philadelphia Semiconductor Index, known as the "global semiconductor stock barometer", saw the stock prices of its 30 component companies fall by at least 5.4%, with companies like ON Semiconductor, KLA Corporation, and Monolithic Power Systems dropping by over 9%. The Nasdaq 100 Index, which includes NVIDIA, Microsoft, Google, and Amazon among many other tech giants, also suffered a heavy blow, plummeting by nearly 3.2%.

To make matters worse for NVIDIA, the US Department of Justice issued subpoenas to NVIDIA and several other companies, demanding specific evidence of NVIDIA's violation of antitrust laws. Subsequently, NVIDIA's stock price continued to decline in after-hours trading on the US stock market, extending its 9.5% plunge by another 2%.

Can't Escape the "September Curse"? The US Stock Market Stumbled on the First Trading Day of September!

For the US stock market, September has been a turbulent month in history, with the "September Curse" looming over US stock investors for a long time - since 1950, the S&P 500 Index and the Dow Jones Index have shown the most significant declines in September. However, this time, the US stock market's dismal start on the first trading day of September has other substantial reasons as well Concerns about Asian economic growth have shaken the commodity markets from oil to copper. The latest manufacturing data in the United States has been very weak, but the data shows that prices paid in manufacturing have increased, which is a potentially worrying sign for inflation hawks. The market fears that the Fed's rate cut may not reach the widely expected 100 basis points. In addition, weak economic data, less optimistic financial reports from tech giants, and their massive AI spending imply that the promise of AI reshaping global economic growth and the prospect of "AI monetization" seem increasingly pessimistic. These latest signals have played a crucial catalytic role in the major collapse of US stocks triggered by chip stocks, making it difficult to justify the high valuations of chip stocks and the entire US stock market.

These views were also expressed by the asset management departments of J.P. Morgan and the investment research institute under BlackRock. Michael Cembalest, Chief Market and Investment Strategist at J.P. Morgan Asset Management, warned that the massive infrastructure spending on GPUs and other AI services brought by artificial intelligence would be unreasonable unless there is a significant increase in demand for AI services outside the tech industry. For Jean Boivin, head of the investment research institute at BlackRock, patience is needed before the takeoff of artificial intelligence, emphasizing that this is a process of "years, not quarters."

Of course, these warnings are not new. The stock price of Google's parent company Alphabet (GOOGL.US) suffered a heavy blow in July when the company reported a sharp increase in AI-related spending, but the profits from AI did not see a corresponding growth, prompting investors to withdraw from large tech stocks. However, when the latest warning about AI monetization was issued, the market had rebounded to near the historic highs set at the end of August, mainly because investors believe that the US economy will not collapse before the Fed starts its rate cut cycle later this month. However, the latest release of weak US manufacturing data has disrupted this optimistic expectation.

"Will we really continue to adhere to the 'soft landing' expected by the Fed? Or will we get some kind of report later this week showing a significant increase in the unemployment rate?" said Brian Maibari, client portfolio manager at Zacks Investment Management. "This is where you start to see a lot of overlapping volatility, hitting the highest-valued industries first, as people start looking for actual profit growth, real profits on the balance sheet. Most importantly, truly stable forward-looking performance guidance."

The benchmark index of the US stock market, the S&P 500, fell by more than 2%, with all sectors except two experiencing significant declines. The Chicago Board Options Exchange Volatility Index (VIX) rose above 20 points. Similar to early August, the sell-off spread to other assets. Oil prices plummeted by 4%, US Treasury yields fell, and investors sought safe havens.

The losses in the chip sector were the most widespread, with the Philadelphia Semiconductor Index experiencing its largest drop since March 2020. Intel's stock, which has been falling continuously this year, dropped by 8.8%, making it the second worst-performing component stock in the Philadelphia Semiconductor Index this year Semiconductor equipment manufacturer Applied Materials Inc. saw its stock price drop by 7%. The world's largest chip foundry, Taiwan Semiconductor Manufacturing Company (TSMC), also experienced a similar decline.

Alphabet, Microsoft, and Apple saw their stock prices drop by at least 1.9% due to a massive sell-off in tech stocks and investors' pessimistic expectations regarding the "monetization of AI," which has spread to the world's largest tech companies seeking to reshape the economy with artificial intelligence.

"Other than large tech companies buying NVIDIA GPUs in bulk, we have not truly seen the diffusion of artificial intelligence in the economy," said Paul Nolte, market strategist and senior wealth manager at Murphy & Silvestre Wealth Management. "The return on investment for all this AI spending still poses significant issues. If you go back to the internet era, the initial winners of the internet were not always the ultimate winners. In terms of still high valuations, we have not reached the point where I would consider a buy-the-dip strategy."

The "Black Monday" market crash on August 5th left global investors uneasy, but the U.S. stock market almost immediately rebounded, rising by over 5% by the end of the month. NVIDIA itself was one of the leaders in this major rebound, and with the Federal Reserve clearly indicating its intention to cut interest rates, the scope of the rebound has become even broader.

A series of key economic data promised on the recent calendar, especially Friday's U.S. labor market report, will solidify bets on the Fed's rate-cutting path. However, traders will have to wait three weeks to receive formal confirmation of the rate cut.

Economists generally expect that U.S. non-farm payrolls in August are likely to rise by 163,000, and the unemployment rate may drop from 4.3% to 4.2%, marking the first decline since March. Improved employment data will ease expectations of a significant rate cut by the Fed in the coming months, potentially reducing bets on rate cuts before 2024 from around 100 basis points to about 75 basis points. This will help the recent continuous rebound of the U.S. dollar to continue its upward trend and suppress global stock markets. Some analysts also believe that if the U.S. labor market deteriorates unexpectedly compared to economists' expectations, it may ultimately prompt the Fed to cut rates by 50 basis points in September.

"As the stock market rebounds significantly from the lows of August, we are entering a well-known seasonally weak period. As people widely anticipate the first rate cut, and it can be said that the rate cut expectations have been digested, it is not surprising to see some risk reduction as investors wait for more data or clearer information," said Christopher Jacobson, Co-Head of Derivatives Strategy at Susquehanna International Group.

Adding Insult to Injury! NVIDIA Receives Subpoena from U.S. Department of Justice

On Tuesday Eastern Time, it was reported that NVIDIA received a subpoena from the U.S. Department of Justice as part of an antitrust investigation. Following this news, the company's stock price continued to decline in after-hours trading on Tuesday, falling by over 2%.

According to reports, the DOJ's investigation has not reached the formal indictment stage, and the agency is inquiring whether NVIDIA has made it more difficult to switch to other AI chip suppliers. Industry estimates suggest that NVIDIA holds at least over 80% of the market share in the data center AI chip market NVIDIA's strong rise in the chip industry in recent years is directly related to its dominant position in the field of data center artificial intelligence chips. This dominant position is closely related to the strong moat brought by NVIDIA's CUDA platform. Competitors such as AMD and Intel started taking the data center artificial intelligence chip field seriously much later than NVIDIA.

About ten years ago, NVIDIA developed a programming language called CUDA for its chips. CUDA is an important tool for engineers training advanced artificial intelligence large models (such as the core model of ChatGPT). CUDA can be said to be a platform that applications like ChatGPT, which rely heavily on generative AI, are extremely dependent on. Its importance is on par with hardware systems and is crucial for the development and deployment of large artificial intelligence models. With its high level of technical maturity, absolute performance optimization advantages, and extensive ecosystem support, CUDA has become the most commonly used and widely adopted collaborative platform in AI research and commercial deployment.

The combination of the CUDA ecosystem barrier and high-performance AI GPU is the core logic behind the 12-month stock price trend of NVIDIA, which is still favored by top Wall Street investment banks as the "AI leader". Bank of America is bullish on NVIDIA's stock price rising to $150 (compared to NVIDIA's close at $108 on Tuesday). Wall Street analysts generally believe that global demand for NVIDIA's H100/H200 AI GPUs remains very strong, and the next generation of AI GPUs based on the Blackwell architecture is expected to bring significant revenue contributions. The "CUDA software-hardware collaborative platform + high-performance AI GPU" together form NVIDIA's incredibly strong moat.

NVIDIA's largest customers are primarily cloud computing services and internet giants, including Microsoft, Alphabet, Meta (Facebook's parent company), and Amazon AWS. As NVIDIA's AI GPUs become the most popular hardware globally, the company has also released new artificial intelligence enterprise software subscriptions and markets its networking products as important supplements to fully utilize the powerful performance of its AI GPUs. NVIDIA is positioning itself as a "comprehensive AI solutions provider"