Nvidia’s record $279 billion selloff shakes global markets

Nvidia shares plunged 9.5% on Tuesday, leading to a sharp selloff in tech stocks worldwide.

“Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed,” said Todd Sohn, ETF strategist at Strategas Securities.

The drop was part of a broader market selloff prompted by tepid economic data and renewed fears of a global slowdown.

The repercussions were felt globally. European shares, represented by the STOXX index, shed 1%, with major markets in London and Frankfurt falling around 0.7%. The semiconductor sector took a significant hit, with ASML Holdings dropping 5.3%.

In Asia, markets in Tokyo and Taipei led the declines, each falling over 3%, while tech stocks like Japan’s Advantest and Taiwan’s TSMC plummeted, with Advantest down 7.7% and TSMC over 5% lower.

“There was plenty of blame to go around. Nvidia. Tech. Soft spots in U.S. data. China gloom,” noted Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho Bank.

Nvidia’s dramatic selloff and growing scepticism about AI have cast a shadow over the sector, prompting a reassessment of high-flying tech stocks.

Investor scepticism on AI investments

Nvidia’s fall has intensified doubts about the returns on hefty AI investments that have driven much of this year’s market rally. BlackRock strategists pointed out, “Some recent research has questioned if the revenues from AI alone will eventually justify this wave of capital spending on it.”

The cautious sentiment has spread to other tech giants, with shares of Microsoft and Alphabet also trading lower in recent months following their quarterly reports.

Worries about slow payoffs from hefty AI investments have dogged Wall Street’s most valuable companies, reflecting broader concerns over tech sector valuations.

Adding to the market turmoil, weak U.S. manufacturing data and fears of a broader economic slowdown have stoked investor anxiety. Oil prices fell to their lowest levels since December, with Brent crude futures down over 1% to $72.86 a barrel, reflecting concerns over reduced global fuel demand amid sluggish growth in China, the world’s largest oil importer.

“Volatility obviously is picking up,” said Jason Teh, chief investment officer at Vertium Asset Management. “We had a first taste of it at the beginning of August… last night we had this macro catalyst (and) the market’s worried about further economic slowdown.

Eyes on upcoming US economic data

Markets are now focused on upcoming U.S. economic data, including job openings, jobless claims, and the critical nonfarm payrolls report due Friday. These figures could sway the Federal Reserve’s decision on interest rates, with speculation ranging between a standard 25 basis point cut and a more aggressive 50 basis point reduction.

“There’s concern about what the job numbers are going to show, about seasonality,” warned Steve Sosnick, a market strategist at Interactive Brokers.

Despite Nvidia’s sharp decline, its stock remains up 118% year-to-date. At its peak in July, Nvidia’s shares had almost tripled in value for 2024, driven by high expectations for its role in powering the next wave of AI technology.

However, the recent downturn has adjusted its valuation metrics. Following Nvidia’s quarterly report last week, the mean analyst estimate for annual net income through January 2025 has climbed to $70.35 billion from about $68 billion prior to the report.

These increased earnings estimates, combined with Nvidia’s share losses, have brought the chipmaker’s trading multiple down to 34 times expected earnings, from over 40 times in June, aligning it more closely with its two-year average.

Uncertainty over tech and global growth

Nvidia’s record-breaking market value loss has sent ripples through global markets, highlighting deepening concerns about the tech sector, AI investments, and broader economic stability. As volatility picks up, investors are bracing for more uncertainty, navigating a landscape marked by high stakes and shifting sentiment.

The coming weeks, with critical economic data releases and Federal Reserve decisions, will likely set the tone for the remainder of the year.

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