Analysts are asking if we are at “peak Nvidia” or if the latest selloff is simply a healthy correction in an overheated market.
Shares in Nvidia, the poster child for AI, plunged nearly 10 per cent on Tuesday, wiping out $279bn of value—the largest single-day loss ever recorded for a US stock.
Since 19 August, shares in the company have slumped 17 per cent.
The Nasdaq and other US indices also suffered amid broader fears over global growth, monetary policy cycles, and a gloomy September sentiment, traditionally a weak month for stocks.
Panic selling across Wall Street, including other tech stocks Intel, Apple, and Microsoft, came as the US Department of Justice (DOJ) subpoenaed Nvidia as part of an investigation into potential antitrust violations.
“Investors have been alert to the threat of big fines and, while certain related events have caused ripples in the market, they haven’t caused any long-lasting troubles so far,” said Russ Mould, investment director at AJ Bell.
But Kathleen Brooks, research director at brokerage XTB, suggested this attitude could change.
She said: “The DOJ case against Nvidia may also erode support for AI in the long term and due to this it could be harder for Nvidia to bounce back than other sectors of the market.
“The legal woes facing Nvidia is giving investors time to rethink the investment case for AI, after its terrific run this year,” Brooks added.
The end of the AI bubble?
Questions are growing over whether AI will deliver on its promises and justify the sky-high valuations and big spending of mega-caps like Nvidia, whose GPUs are critical for powering AI applications across industries, from data centres to autonomous vehicles.
Investors have high expectations.
Even after Nvidia posted record revenue last week, shares tumbled over eight per cent because the company didn’t live up to the market’s lofty expectations.
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Is there an AI bubble and will it burst?
“Investors appear to be teetering on the brink of AI apathy,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“Concerns are growing that the much-hyped benefits of artificial intelligence-powered products and services aren’t yet showing up in a big enough way to justify the huge sums being poured into the technology,” she explained.
Some, like famed Ark Invest founder Cathie Wood, have warned that the frenzy around AI could burn investors.
American hedge fund Elliott Management also recently expressed scepticism over the technology’s ability to deliver on its productivity promises.
It said AI is “overhyped with many applications not ready for prime time” and warned that star stock Nvidia was in “bubble land”.
A new study released today by FTI Consulting found that investors are increasingly demanding stronger governance, board oversight, risk management and transparency related to AI.
It revealed a “significant increase” in the number of AI-related shareholder proposals, with 16 filed in 2024, compared to seven in 2023 and just four in 2022.
Despite recent declines, Nvidia shares are still up around 124 per cent since the start of the year, and bullish analysts have argued that this is just the market reacting to fleeting concerns.
“This is no time to write off Nvidia,” said Nigel Green, chief executive of financial advisory Devere Group.
“The market may be reacting to short-term concerns, but Nvidia’s role in the future of AI remains solid. This dip should be viewed as a temporary setback, not a sign of declining relevance,” he added.