About four weeks after a sharp decline in U.S. stock prices due to a global exodus from risky assets, the sell-off of semiconductor manufacturer stocks has triggered a new wave of stock market declines. Two industry analysts have raised concerns once again that the frenzy surrounding artificial intelligence (AI) has gone too far.
On the U.S. stock market on the 3rd, after Labor Day weekend, the stock of NVIDIA, a leading AI semiconductor manufacturer, fell by 9.5%, resulting in a loss of $278.9 billion (about 40 trillion 546 billion yen). This is the largest drop for a single U.S. stock in history.
NVIDIA’s revenue forecast announced on the 28th of last month failed to meet investors’ high expectations, resulting in a total decline of 14% over the following three trading days. All 30 stocks comprising the Philadelphia Semiconductor Index (SOX) fell by at least 5.4% on the 3rd, marking a significant drop not seen since March 2020.
ON Semiconductor and KLA, Monolithic Power Systems both dropped by over 9%, leading to a nearly 3.2% decline in the Nasdaq 100 index.
In response to the U.S. Department of Justice seeking evidence of antitrust violations against NVIDIA and other companies, NVIDIA’s stock fell an additional 2% in after-hours trading.
U.S. Department of Justice issues document request to NVIDIA, indicating a ramp-up in antitrust investigations.
Historically, September has been a month of high volatility for stocks, and the tumultuous start has several reasons behind it.
Concerns over China’s growth have sent ripples through commodity markets such as oil and copper, while the Institute for Supply Management (ISM) reported that the composite manufacturing index for August contracted for the fifth consecutive month, although the purchasing prices index rose, signaling potential worries for inflation hawks.
However, the most powerful catalyst for the drop in technology stocks was a new warning that predicts it is far from reality for AI to reshape the global economy, making it difficult to justify the enormous valuations.
Both J.P. Morgan Asset Management (JPAM) and BlackRock Investment Institute (BII) have expressed similar views. Among them, Michael Semblatt of JPAM warned that AI spending would not be justified unless demand for AI services from companies outside of technology begins to rise.
Additionally, Jean Boavan of BII expressed that it will require “patience” for AI to leap forward, indicating it is a process taking “not a few quarters but several years.”
These warnings are, of course, not new. Alphabet suffered stock declines in July as it was expected that profits would not keep pace with the surge in AI spending, prompting a rotation out of major technology stocks.
However, this time, with expectations that the U.S. economy would not deteriorate sharply before the Federal Open Market Committee (FOMC) meeting on the 17th and 18th of this month, a new warning comes as stock prices approached record highs in late August.
The impact on semiconductor stocks has been widespread, with Intel, which has the second-worst performance in the SOX this year, falling by 8.8%, and Applied Materials, the largest semiconductor equipment manufacturer in the U.S., down 7%. The U.S. Depositary Receipts (ADR) of Taiwan Semiconductor Manufacturing Company (TSMC) also fell nearly 7%. Additionally, Alphabet, Microsoft, and Apple also saw declines.
Paul Northe, a senior wealth manager at Murphy & Silvest Wealth Management, pointed out that “AI is not yet widespread across the economy” outside of major technology companies. There are “still significant questions” regarding the return on investment (ROI) related to AI spending, and he stated, “In terms of valuation, we are not yet at a point where it’s appealing to buy on dips.”
Original title: Nvidia Suffers Record $279 Billion Rout as AI Worry Sinks Stocks (excerpt)
(We will update with additional comments from market participants)