Why Nvidia triggered a stock market freakout Vox.com
source
Why Nvidia triggered a stock market freakout
What does Nvidia’s massive stock sell-off tell us about the economy?
by Ellen Ioanes
Updated Sep 5, 2024, 10:00 AM CDT
Nvidia CEO Jensen Huang during the Nvidia GTC Artificial Intelligence Conference at SAP Center on March 18, 2024 in San Jose, California. Justin Sullivan/Getty Images
Ellen Ioanes covers breaking and general assignment news as the weekend reporter at Vox. She previously worked at Business Insider covering the military and global conflicts.
Nvidia, the world’s leading AI chip manufacturer, sparked a global stock market downturn Wednesday, with indexes falling in Asia, Europe, and the United States.
After Bloomberg reported on Tuesday that the US Justice Department issued Nvidia a subpoena as part of an antitrust investigation, investors sold $279 billion worth of shares — amounting to 9.5 percent of the company’s stock. On Wednesday, a spokesperson denied that the company had received the subpoena, but said Nvidia is “happy to answer any questions regulators may have about our business.”
Still, the sell-off is bad news for Nvidia, and it renews existing concerns about the strength of the AI sector and the US economy more broadly.
That one company was able to have such an impact on global stock prices is a testament to Nvidia’s size and reach. Nvidia is the third most valuable company in the world. Because of its dominance, its success — or failure — can shift the tech-heavy Nasdaq stock index, where it is listed. And because it’s so entangled with other tech companies, when it falls, so does the stock of its partners, like Taiwan Semiconductor Manufacturing Company, which pulled down markets overseas. In the US, Nvidia pushed sell-offs throughout the entire tech industry. Microsoft, Amazon, and Intel shares were down as of Wednesday afternoon, though Nvidia competitor Advanced Micro Devices saw gains.
“One of the big risks is that you have this market concentration, and all it takes is those names to be volatile, for it to feed through to the entire market,” Justin Onuekwusi, chief investment officer at investment firm St. James’s Place, told Reuters Wednesday.
While Nvidia triggered this week’s stock market slump, there are a few other factors that have investors rattled. Recent concerns about China’s sluggish economy are putting a damper on a wide array of businesses, including an oil industry already struggling with falling prices. Weak manufacturing in the US, along with some higher prices in that sector, are part of the equation as well.
Nvidia’s troubles come amid rising uncertainty about the AI sector
Investors have significant concerns about whether the US tech sector is headed in the right direction. Questions about whether Nvidia is overvalued, and about the wisdom of investing so heavily in AI technology, have dogged the tech sector for months. Analysts from JPMorgan Asset Management and Blackrock cautioned earlier this week that massive spending on AI hasn’t been justified because the technology has limited applications outside the tech sector.
Companies like Microsoft and Meta have ignored that advice, spending as much as 40 percent of their hardware budgets — tens of billions of dollars — on Nvidia products to accelerate their own AI products. But that has investors worried that tech companies are betting too much on a future that may never come. And that if these giant companies have made a wrong bet, they may drag the stock market down with them.
“[Tech companies are] all kind of saying, ‘Look, we’re not going to be on the wrong side of this. We’re going to invest,’” Daniel Newman, CEO of the Futurum Group, a global technology research and advisory firm, told Vox. “But I’m not hearing for what, or where this provides the return. And I think there’s a little bit of hesitation on [Wall Street] — people want to know where that return comes from.”