Shares of AI giant Nvidia plunged 9.5% on Tuesday, marking the largest single-day loss in market value for a US company. 

Nvidia's $279 billion loss in market capitalization may signal a potential downfall in investor enthusiasm against emerging AI technology, which has fueled much of this year's stock market gains. 

The PHLX chip index plummeted 7.75%, marking its largest single-day drop since 2020.
The recent concerns about AI follow Nvidia's quarterly forecast last Wednesday, which fell short of the high expectations set by investors who had fueled a remarkable rally in its stock.

"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, an ETF strategist at Strategas Securities.

Intel fell nearly 9% after a Reuters report revealed that CEO Pat Gelsinger and key executives are expected to present a plan to the company’s board of directors to cut non-essential businesses and overhaul capital spending at the struggling chipmaker.

Nvidia stocks had tripled in 2024

Concerns over delayed returns from significant AI investments have weighed on Wall Street's most valuable companies in recent weeks. Microsoft and Alphabet have traded lower since their July quarterly reports.

"Some recent research has questioned if the revenues from AI alone will eventually justify this wave of capital spending on it. When assessing AI capex by individual companies, investors must consider if they are making the best use of their balance sheets and capital," BlackRock strategists wrote in a client note on Tuesday.

At its record high in July, Nvidia's stock had nearly tripled in 2024. Despite recent losses, it has remained at 118% year to date. The weakness in chip stocks on Tuesday coincided with broad declines across Wall Street, with the Nasdaq falling 3.3% and the S&P 500 down 2.1%.

That said, investors expect that the Federal Reserve must cut interest rates by 25 basis points in its September 18 policy announcement, according to CME's FedWatch Tool. However, minority expectations for a 50 basis point rate cut increased to 37% from 30% after Tuesday's data indicated that activity in the manufacturing sector remains weak.

Nvidia's financial losses come after surpassing Microsoft to become the world’s most valuable company in a race to take over the market for artificial intelligence in June 2024. Its shares soared 3.5% to $135.58, pushing its market capitalization to $3.34 trillion only days after surpassing Apple.

Stocks rose around 180% this year, as opposed to the increase of about 19% in Microsoft shares, as Microsoft, Meta Platforms and Google-owner Alphabet are competing to establish their AI-computing capabilities and dominate the field.