Nvidia is suddenly in trouble

The Nvidia office building is shown in Santa Clara, Calif., on Aug. 7, 2024. (Jeff Chiu / AP Photo)

Nvidia, the AI chipmaking titan that was briefly the world’s most valuable company, has suddenly found itself in an unfamiliar position: a major rut.

Nvidia (NVDA) had the worst day in the history of the stock market Tuesday, as measured by loss in total market value. Its 9.5 per cent share price decline shaved a stunning US$279 billion off the company’s value, far outpacing the previous record of US$240 billion set by Meta in 2022.

To put that shocking decline into context, only 27 companies on the planet are worth as much as Nvidia lost in value Tuesday. That US$279 billion evaporation is worth more than all the shares of some of America’s biggest companies, including McDonald’s, Chevron and Pepsi.

CEO Jensen Huang, who is Nvidia’s largest individual shareholder (and fifth-largest overall, counting institutional investors like BlackRock) personally lost US$10 billion in wealth Tuesday from Nvidia’s sharp tumble.

The company has been in decline since June 18, when it topped US$3.3 trillion in value — the highest for any public company. As the U.S. economy begins to show some signs of stress, investors have grown skeptical of Nvidia and other AI stocks’ sky-high valuations. Stock traders are worried that potential weakness in the economy could make companies think twice before investing in the promising but still risky and unproven technology.

Despite blockbuster earnings last week, Nvidia’s somewhat more tepid outlook disappointed investors who were looking for more upside, and the stock fell.

Nvidia has tumbled more than 20 per cent since its June 18 peak. Microsoft, which has made huge bets on AI technology, has fallen 12 per cent from its most recent peak. And TSMC, Nvidia’s biggest AI chipmaking rival, has plunged 18 per cent since mid-July.

Meanwhile, Intel, once the world biggest chipmaker, has endured a 59 per cent decline in its share price this year. That company faces its own unique challenges in its bid to remake itself and get into the AI game.

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Potential legal woes ahead

But Nvidia may face a different set of problems: Much of Tuesday’s sharp decline was because the U.S. Justice Department reportedly sent it a subpoena as part of an antitrust probe, according to Bloomberg. CNN could not independently verify the subpoena, and the Department of Justice and Nvidia declined to comment directly on the antitrust investigation.

“Nvidia wins on merit, as reflected in our benchmark results and value to customers, who can choose whatever solution is best for them,” an Nvidia spokesperson said in a statement.

The Biden administration has been going hard after tech titans, launching probes and lobbing charges against Apple, Google and Amazon, among others. It’s unclear whether a Kamala Harris or Donald Trump administration would continue those cases, but both have criticized tech companies for various reasons during their campaigns.

Nvidia gained about one per cent Wednesday. The Nasdaq Composite, which tanked more than three per cent Tuesday, was unchanged Wednesday.

Still, AI bulls continue to believe in Nvidia. The stock remains up 118  this year and has a US$2.7 trillion market valuation — a close third behind Apple and Microsoft. Huang said last week that demand for its latest “Blackwell” AI chips “far exceeds its supply.” And even as competition grows, demand for Nvidia’s chips is growing, too.

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And the investments are paying off — so far, at least — Huang claims.

“People who are investing in Nvidia infrastructure are getting returns on it right away,” Huang said last week, noting that the company’s new graphics processing units, the GPU chips that power AI, process data so efficiently that they end up saving clients money quickly.

That’s why bulls like Wedbush’s Dan Ives believe Nvidia’s stock decline presents a buying opportunity.

“Nvidia has changed the tech and global landscape as its GPUs have become the new oil and gold in the IT landscape,” Ives said Tuesday in a note to investors.