Nvidia, Super Micro lead AI trade carnage with stocks down over 5%

Artificial intelligence stocks powering much of 2024’s market gains dropped Monday as U.S. recession fears sparked a global sell-off on Wall Street.

The declines across the sector come after Friday’s disappointing July jobs report stoked recession concerns, and worries that the Federal Reserve is behind the curve on cutting interest rates to boost the economy. With investors in a risk-off mood, AI shares with high valuations were among the first dumped from portfolios.

Nvidia and Super Micro Computer plummeted more than 5% each, after dropping as much as 14% earlier in the session. As of Friday’s close, Nvidia sat more than 20% off its highs, while Super Micro had already lost nearly half its value.

Contagion spread to the broader sector. The VanEck Semiconductor Index declined nearly 3%, building on a 5.5% loss from Friday. Taiwan Semiconductor Manufacturing and Micron Technology dropped about 4%, while Broadcom edged down more than 3%.

Megacap technology stocks also sold off during premarket trading, with Alphabet, Meta Platforms, Amazon and Microsoft falling more than 3% each. Tesla declined 4.5%, while Apple shares slid 5.5%. Warren Buffett’s Berkshire Hathaway revealed over the weekend that it dumped nearly half its stake in the iPhone maker.

Major technology stocks — with the exception of Nvidia — wrapped up a busy earnings stretch last week. Some results fueled skepticism that hefty spending on AI is taking longer than expected to pay off as capital expenditures and spending trudge higher.

“AI tailwind has net net begun to falter as investors have started to lose patience on monetization timelines,” wrote UBS strategist Maxwell Grinacoff. “We previously flagged that concentration risk in the theme has grown, with electrification companies to copper miners to data centers getting sucked into its wake.”

Meanwhile, semiconductor companies are coming off a “less than inspiring start” to earnings, noted Jefferies’ trading desk.

The Information also reported over the weekend that Nvidia is delaying its latest AI chip by three months, which could affect megacap customers such as Meta Platforms and Microsoft.

Monday’s sell-off also comes on the heels of a rocky July for technology shares. Nvidia, Alphabet and Meta Platforms pulled back more than 5%, while Microsoft dropped more than 6%.