Nvidia and chip index fall as investors halt AI rally By Reuters

By Noel Randewich

(Reuters) – Shares in Nvidia (NASDAQ: warm

Nvidia, seen as Wall Street’s biggest winner in a race to dominate emerging AI technology, fell more than 8 percent, while the PHLX chip index was on track for its biggest one-day percentage drop in – a month.

With Tuesday’s drop, Nvidia shares are now down 13% since last Wednesday, when its quarterly guidance fell short of lofty investor expectations that led to a dizzying rally in its stock.

“Season is a very lean month of the year, so I think people are nervous,” said Dennis Dick, trader at Triple D Trading. “I don’t think the AI ​​rally is over.”

Intel (NASDAQ: difficulty.

Concerns about sluggish returns from massive investments in artificial intelligence have weighed on Wall Street’s most valuable companies in recent weeks, with shares of Microsoft (NASDAQ: ) and Alphabet (NASDAQ: ) trading lower following their quarterly reports in July.

“Some recent research has questioned whether AI revenues alone will ultimately justify this wave of capital spending on it. When evaluating AI capital by individual companies, investors should consider whether they are making the best use of their balance sheets and capital,” BlackRock. Strategies (NYSE: ) wrote in a client note on Tuesday.

At its record close in July, Nvidia nearly tripled in 2024. Its recent losses leave it up 122% year to date.

Tuesday’s weakness in chip stocks accompanied a broad sell-off on Wall Street, with the Nasdaq down 3% and 1.9% lower.

Investors widely expect the Federal Reserve to cut interest rates by 25 basis points in its Sept. 18 policy announcement, according to CME’s FedWatch tool.

However, minority expectations for a 50 basis point cut rose to 37% from 30% after Tuesday’s data signaled that activity in the manufacturing sector remained weak.

The chip index is now up 15% in 2024, just below the S&P 500’s 16% gain.

Following Nvidia’s quarterly report last week, the average analyst estimate for annual net income through January 2025 rose to $70.35 billion from about $68 billion before last week’s report.

Those earnings growth estimates, combined with Nvidia’s share losses, mean the chipmaker now trades at 34 times expected earnings, down from more than 40 in June and in line with its two-year average.

Broadcom (NASDAQ: ), another chipmaker that has benefited from the boom in AI computing, fell 5.6% ahead of its quarterly report on Thursday.