Nvidia shares extended their record slump in Wednesday afternoon trading following reports that the chipmaker is part of an antitrust probe into the semiconductor sector by the Department of Justice.
Bloomberg News reported that Nvidia (NVDA) , which lost $279 billion in value during yesterday's tech-market selloff, the biggest single-day market-cap decline on record, received a DoJ subpoena tied to the probe that compels it to provide information.
The DoJ is looking into allegations that Nvidia prevents its customers from easily switching from one chipmaker to another and penalizes companies when they do. The government is also investigating Nvidia's April acquisition of software group RunAI.
Nvidia said in a statement that it "wins on merit," adding that customers are "free to choose whatever solution is best for them."
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News of the DoJ probe could make a near-term recovery for chip stocks difficult, particularly following the biggest single-day decline for the benchmark Philadelphia SE Semiconductor index since March 2020 on Tuesday.
Nvidia spending capture
Investors are worried that an overvalued sector, tied to the profit expectations from a wave of AI spending from hyperscalers such as Microsoft (MSFT) , Amazon (AMZN) , Meta Platforms (META) and Google parent Alphabet (GOOGL) , is ripe for correction. The hyperscalers are the major providers of cloud services and infrastructure.
Nvidia's role in the current market ramp and the impact that tech investments are having on the broader economy are equally compelling: Estimates suggest that at the current projected rate, Nvidia will capture around 14% of marketwide capital spending by 2026.
Wedbush analyst Dan Ives, however, remains bullish in the face of yesterday's selloff.
Related: Analysts overhaul Nvidia stock price targets after Q2 earnings
"While investors may fret about this massive spending wave and frustrated that top- line growth/margins from these investments could take time to materialize, this ultimately speaks to our view [that] this is a 1995 (almost 1996) start of the Internet Moment and not a 1999 Tech Bubble-like moment," he said.
"The cloud numbers and AI data points from Microsoft, Amazon and Google were very strong during earnings season the last few [months. This] indicates massive enterprise AI demand is now [underway,] which was further confirmed by Nvidia last week and is a major bullish data point for the broader tech sector into year-end," he added.
Muted earnings from Nvidia
Nvidia posted modestly better-than-expected second earnings last week, albeit against elevated expectations for the market's hottest stock. But the chipmaker hinted that delays in its new line of Blackwell processors would push anticipated revenue from the line into the final three months of the year.
Finance chief Colette Kress said Blackwell should generate "several billion" in revenue for Nvidia's fiscal fourth quarter, which ends in January, adding that legacy Hopper chip sales would accelerate over the second half.
Related: Tech titans target OpenAI deal, including Nvidia
The Blackwell ramp, however, will likely eat into Nvidia's profit margins, which narrowed modestly to 75.7% in the second quarter and will likely settle at the 75% level over the near term.
More AI Stocks:
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- Analyst resets Nvidia stock price target before earnings
- Analysts revise Palo Alto Networks stock price targets after earnings
Nvidia shares were last marked 2% lower into the final hour of afternoon trading to change hands at $105.77 each after hitting the lowest levels since August 8 earlier in the session.
$NVDA -25% from the June high pic.twitter.com/KZP7vWGaqs
— Mike Zaccardi, CFA, CMT 🍖 (@MikeZaccardi) September 3, 2024
The stock has lost around $680 billion in value since its June 17 peak, an amount that is more than the combined market cap of rivals Advanced Micro Devices (AMD) , Micron Technology (MU) , Arm Holding (ARM) and Intel (INTC) .
Related: Veteran fund manager sees world of pain coming for stocks
