Nvidia shares take a beating
The stock markets are heading downward
This audio version was artificially generated. More info | Send feedback
Whether in Japan, the USA or Germany: stock markets are sliding worldwide. The price slide at the previous high-flyer Nvidia alone has wiped out almost 280 billion in market value.
After Wall Street and Japan had already seen a decline, the Frankfurt stock market is also showing weakness. The DAX lost 0.7 percent to 18,602 points, after being even lower in the morning.
In Tokyo, the Nikkei index plummeted by more than four percent. In New York, the broad-based S&P 500 fell 2.1 percent and the technology-heavy Nasdaq fell 3.3 percent.
On Tuesday, the German leading index crept up to just below the psychologically important 19,000 mark and reached a new record high before turning negative. The main reason for the setback was disappointing data on the US economy.
In August, US industry was barely able to slow its downward trend. The purchasing managers' index for the economic sector rose slightly by 0.4 points to 47.2 points compared to July, according to the company survey by the Institute for Supply Management (ISM). However, the barometer still remains well below the growth threshold of 50 points.
The industrial sector accounts for a good ten percent of economic output in the USA. It is battling headwinds from the sluggish global economy and the high interest rate policy of the US Federal Reserve, which has recently opened the door for an imminent reduction.
Nvidia shares plummet
Meanwhile, bad news also came from the US construction sector. Construction spending fell by 0.3 percent in July, according to the Department of Commerce. Construction is also suffering from the tight monetary policy of the Fed, as mortgage interest rates have risen. The Fed recently kept key interest rates in the range of 5.25 to 5.50 percent. However, the financial markets are expecting a reduction in September, which should revive the construction business.
In addition, weak sales data from the US Semiconductor Industry Association caused a bad mood. Technology stocks in particular came under pressure as a result. At the forefront: Nvidia. The chip manufacturer's shares lost 9.5 percent, which corresponds to a market value of 279 billion dollars. The downward trend continued after the stock exchange closed in New York.
In the wake of the AI hype, Nvidia's share price had multiplied since the beginning of 2023. The market value broke the three trillion dollar mark for the first time at the beginning of June. At that time, Nvidia had overtaken Apple. Only Microsoft was more valuable. Accordingly, a strong percentage drop in Nvidia's share price is now reflected in three-digit billion dollar losses in market value. The last time there was a similarly high loss within one day was in early February 2022, when Facebook's parent company Meta Platforms lost $232 billion in market value after a weak forecast.
In Japan, shares in chip giant Tokyo Electron and chip tester manufacturer Advantest fell by around 9 and 8 percent respectively. Chip manufacturer Renesas Electronics fell by more than 10 percent.
“Trade completely distorted”
Stock market traders interpreted this as a sign that investors are becoming more cautious about technologies related to artificial intelligence. AI has contributed significantly to the price gains on the stock markets this year. Nvidia presented a quarterly forecast last week that did not meet investors' high expectations.
“So much money has flowed into technology and semiconductor stocks over the past 12 months that trading is completely distorted,” said Todd Sohn, strategist at Strategas Securities. Experts at fund provider BlackRock wrote in a note to clients that some recent studies cast doubt on whether the revenue from AI justifies the wave of investment in the technology.
Investors are now waiting for the US labor market data due later in the week. They hope to use these to determine whether the US Federal Reserve will initiate the expected interest rate turnaround with a cut of half or a quarter of a percentage point.
