Nvidia Suffers Record $279 Billion Loss Following Subpoenas from DOJ

With a decline of $1.2 trillion in value, it was the worst single-day drop for the US stock market.

Key Takeaways

➔ The US Justice Department sent subpoenas to Nvidia and other firms regarding alleged antitrust violations.  

➔ Nvidia has taken a 12% loss within three days after its earnings release.  

➔ Other elements also contributed to the poor performance in the first week of the month.

Four weeks after US stocks tumbled due to the worldwide selloff in risky assets, chipmakers led to another round of losses as analysts revived the debate that the AI craze had become too hot.  

Nvidia Corp.(NVDA) witnessed its shares drop by 9.5%, erasing $279 billion from its market value. With a decline of $1.2 trillion in value, it was the worst single-day drop for the US stock market. This takes Nvidia’s loss to 12% in three days following the release of its earnings, which disappointed the market.  

Image: Nvidia Corp.  latest price movement, by Bloomberg  

To make things worse, Nvidia shares slipped another 2% in after-market trading as the US Justice Department sent subpoenas to Nvidia and other firms concerning the chipmaker's alleged antitrust violations.  

Related: Nvidia Results Cause AI Cryptocurrencies to Falter

Nvidia Not Fully Responsible for Market Decline

Other elements also contributed to the poor performance in the first week of the month. China’s economic slowdown concerns affected the commodities market: oil and copper prices dropped. US manufacturing data was soft, and the paid index increased, signalling higher inflation.  

However, the main trigger for the tech sector to go into a correction was the concern that the AI revolution, while massive, is still in the beginning, leaving to understand that the current valuations are quite overstretched.  

Warnings about the AI market overpricing are not new. In fact, Alphabet Inc. faced a setback in July after reporting an increase in AI expenditures without a proportionate increase in revenue, which prompted a selloff in tech stocks. However, the recent warnings came to the market that had gained ground in late August on expectations that the US economy would not fall further before the Federal Reserve lowered interest rates this month.  

“Are we actually going to stick this soft landing, or are we going to get some type of a report later this week that shows unemployment is starting to rise substantially?” said Brian Mulberry, client portfolio manager at Zacks Investment Management. “That’s where you’re starting to see a lot of this volatility coincide, and it’s just hitting the most overvalued sectors first, and people are starting to look for actual earnings growth, real revenues on the balance sheet. And more importantly than anything, really stable forward guidance.”  

Chip equipment maker Applied Materials Inc. lo7%st  of its value, while Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, also fell by the same margin. Alphabet, Microsoft, and Apple Inc. lost at least 1.9% each as the downturn spread to large corporations interested in becoming the leaders of the AI industry. The Cboe Volatility Index went above 20, and the S&P 500 fell by more than 2%, as most sectors were red.

Moving forward, markets will watch several key releases, including the US non-farm payrolls report due this Friday, September 6th. This report may provide more clues about the Fed’s future actions. However, traders must wait three weeks to get concrete evidence of the Fed’s next move.