Nvidia, chip stocks float after previous day’s sell-off By Reuters

(Reuters) – Chip companies led by market cap leader Nvidia (NASDAQ: ) were set to extend losses on Wednesday after a sharp selloff in the previous session, reflecting growing concern on Wall Street about lofty stock valuations as optimism AI. it gets cold.

Nvidia fell 1.6 percent in premarket trading after Tuesday’s 9.5 percent drop wiped $279 billion from its market value, the biggest one-day decline for a U.S. company .

Excitement around the rise of artificial intelligence technologies has propelled much of the stock market’s gains this year, pushing the valuation of chip companies to levels that some investors consider inflated.

Concerns about a slow payback on massive AI investments have grown, and Nvidia’s forecast last Wednesday fell short of lofty expectations, even though the company posted strong quarterly revenue growth.

Other chip stocks incl Arm Holdings (NASDAQ: ), Micron Technology (NASDAQ: ), Qualcomm (NASDAQ: ) and Broadcom (NASDAQ: ), fell between 0.5% and 1.5% in premarket action on Wednesday. Publicly traded shares of TSMC, Nvidia’s chipmaking partner, fell 1.5 percent.

“The focus is now turning to valuations in the US equity market in general, and some of the tech names have quite a premium built in,” said Tai Hui, chief Asia market strategist at JP Morgan Asset Management in Hong Kong.

Since peaking on June 18, Nvidia shares have lost about 20% of their value. Its forward price-to-earnings ratio is now just below 30, representing a decline in its valuation. Still, the stock is up more than 650% since the start of 2023.

“The whole development of AI… is very promising. It’s just the question of…how are companies going to monetize all this development, how do we justify all these investments that are happening now? Investors are just waiting for that answer.”

Nvidia shares are also taking a hit after Bloomberg News reported that the US Department of Justice has subpoenaed the company, deepening its investigation into AI’s antitrust practices.

Analysts have warned that regulatory scrutiny of Nvidia could intensify further. The company disclosed requests for information from regulators in the US and South Korea last week.

“Nvidia is not only the biggest player in the AI ​​chip market, but it is also invested in a large number of other AI companies, which means its fingers are in several pies,” said Dan Coatsworth, an analyst at investments at AJ Bell.

“The regulator may want to know whether it gives preferential treatment to these investees or to customers who exclusively use its chips.”