Nvidia's record $279 billion loss in market value highlights fears of AI bubble collapse

[midian182]

Listen for the pop: Nvidia has achieved several records recently, thanks to its dominance of the advanced AI hardware market, but this is one it doesn't want: Team Green just saw around $279 billion wiped off its market cap, the largest one-day drop in US history. Other companies in the tech industry also saw their share prices fall following the publication of weak economic data. The turmoil appears to be an indicator that the AI bubble might be starting to burst.

Nvidia shares crashed more than 9% during regular trading yesterday, the result of weak data on the state of the manufacturing sector from the Institute for Supply Management, which brought concerns about an economic slowdown.

Nvidia's shares fell another 2.4% in post-market trading after Bloomberg reported that the firm had received a subpoena from the Department of Justice as part of an antitrust probe.

Nvidia has now taken Meta's record for the largest one-day fall in market capitalization in US history. Its $279 billion drop dwarfs the $232 billion loss Meta suffered in February 2022.

Nvidia's share price over the previous five days

Tech stocks in general were down yesterday. The Financial Times notes the tech-dominated Nasdaq Composite fell 3.3%, while the Philadelphia Semiconductor index was down 7.8%. Struggling Intel, meanwhile, was down 9%.

The tech stock crash extended outside of the US, as Samsung, SK Hynix, Tokyo Electron, TSMC, ASML, and Softbank all saw their share prices fall.

The generative AI boom has disrupted the tech industry in a way not seen since the advent of the World Wide Web. It's made Nvidia the third most valuable company in the world, and firms are pouring billions into the market and related technologies. But returns aren't matching investments, most consumers are indifferent or even hostile toward anything related to AI, and the number of jobs it is replacing and threatens to replace isn't endearing the technology to the public.

In April, we heard that the slow return on AI investments was starting to spook investors. There was also a report in July revealing that Big Tech needs to generate $600 billion annually to justify AI hardware expenditure, raising questions about future sustainability.

The share price crash, combined with Nvidia's recent quarterly forecast that failed to meet investors' demands for more growth, has lent fuel to the argument that the generative AI business is a bubble that's close to bursting. If or when it does, we could see a market crash comparable to when the dotcom bubble popped in 2000, putting dozens of companies out of business and causing massive layoffs.

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Nvidia's record $279 billion loss in market value highlights fears of AI bubble collapse

 

[Dr Roboto]

Article from "TheStreet" I read this morning

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."

 

[R00sT3R]

One can only hope.

This AI crap has only come about because of the desperate search for the 'next big thing' by the bunch of man-baby sociopaths running big tech in America, to feed this nonsense monster of infinite growth alive and to keep happy the parasites on Wall St.

 

[Neatfeatguy]

Investors: You made us billions with your AI. We LOVE YOU! You need to make us more billions!

Nvidia: Outlook on returns is a little under projected numbers by a few billion dollars. We still made billions, but just not as many of billions as last time.

Investors: You only made us slightly less billions than the same time last year....you all SUCK! WE HATE YOU! DIE! We wanted more and more and more billions! Not slightly less billions than last year! ARGH!

What a bunch of greedy cucks.

With all that aside, hopefully all this parroting search engine "AI" crap dies down some.

 

[EdmondRC]

I think AI is not the one size fits all solution that the tech industry management thought it would be. Yes, it definitely has it's uses and it's not going anywhere. It's revolutionary in many ways and it will change the world. Just not in the way everyone initially thought it would. It's kind of like one of those old Popular Science articles. New things go through many iterations before a practical and final form is actually viable. All those weird Dr. Suess looking vehicles, some concepts made it to the real world, but the end results looked nothing like the original ideas.

 

[trparky]

Nvidia said in a statement that it "wins on merit," adding that customers are "free to choose whatever solution is best for them."

Bullshit. Is that why when someone tried to create a software compatibility layer allowing users to run CUDA code on AMD, nVidia damn near went ballistic?

 

[Thanthan]

Investors: You made us billions with your AI. We LOVE YOU! You need to make us more billions!

Nvidia: Outlook on returns is a little under projected numbers by a few billion dollars. We still made billions, but just not as many of billions as last time.

Investors: You only made us slightly less billions than the same time last year....you all SUCK! WE HATE YOU! DIE! We wanted more and more and more billions! Not slightly less billions than last year! ARGH!

What a bunch of greedy cucks.

With all that aside, hopefully all this parroting search engine "AI" crap dies down some.

To my knowledge NVidia does not provide a dividend for its investors. This essentially makes the profits of the company irrelevant to investors as they won’t get any of it directly, the only value in NVidia stock is selling it for more than you paid, meaning profits have to go up, so that the company is worth more than when you bought your stock.

The argument is that companies that don’t do dividends have more money to reinvest but… frankly I prefer regular dividends… just seems more honest and less bubbly…

 

[Endymio]

To my knowledge NVidia does not provide a dividend for its investors. This essentially makes the profits of the company irrelevant to investors as they won’t get any of it directly

NVidia can and does pay dividends. But yes, NVidia -- along with nearly every other growth-oriented public corporation -- returns the bulk of its profits to fund further expansion. If you believe that makes profits "irrelevant" to investors, though, you don't understand the financial mechanics. Assuming for simplicity sake that you're the sole shareholder, then if a company earns $10,000 in profits, it can either:

a. Give that $10K to you directly.
b. Leave the $10K in its bank account.
c. Purchase $10K in gold bars (or any other fixed asset)
d. Reinvest $10K in growth (R&D, acquisitions, etc)

In all cases except for a failed Option D, you the owner still profit by the same amount. And if Option D succeeds, then you profit by more than the original amount.

 

[Starfals]

Thats insane, oh well. I hope the AI bs is coming to an end. Who knows, maybe Nvidia would start begging us gamers and content makers to buy their cards again? They literally dont care about us anymore (atm)

I mean crypto is done, and if the AI thing is done too.. what else will they do?

 

[Tekpot]

The Ai bubble illusion ended quickly before NGreedia could inflate it's pockets and the GPU prices as well.

 

[Endymio]

The Ai bubble illusion ended quickly before NGreedia could inflate it's pockets and the GPU prices as well.

Where do people get this stuff? NVidia's market cap is still 2.6 trillion dollars .. and the "AI bubble" will end about the time the "Internet bubble" does.

 

[Mr Majestyk]

I have a bottle of expensive Champagne on ice, awaiting the AI bubble bursting and Huang being 99.9999% poorer

 

[Thanthan]

NVidia can and does pay dividends. But yes, NVidia -- along with nearly every other growth-oriented public corporation -- returns the bulk of its profits to fund further expansion. If you believe that makes profits "irrelevant" to investors, though, you don't understand the financial mechanics. Assuming for simplicity sake that you're the sole shareholder, then if a company earns $10,000 in profits, it can either:

a. Give that $10K to you directly.
b. Leave the $10K in its bank account.
c. Purchase $10K in gold bars (or any other fixed asset)
d. Reinvest $10K in growth (R&D, acquisitions, etc)

In all cases except for a failed Option D, you the owner still profit by the same amount. And if Option D succeeds, then you profit by more than the original amount.

No, that’s not actually the case. A company can keep doing options b, c, and d forever without a shareholder making any money. If the stock doesn’t go up as a result of b, c, and d, something that is SOLELY due to activity in trading stocks, and has nothing to do with the actual revenue and profits of a company, a shareholder would make no money. Only in option a is the shareholder guaranteed money from a firms success.

 

[Endymio]

No, that’s not actually the case. A company can keep doing options b, c, and d forever without a shareholder making any money. If the stock doesn’t go up as a result of b, c, and d...

That's like claiming you can walk through a thunderstorm without getting wet by simply avoiding each raindrop as it falls. Those other options immediately raise a company's book value. They may not immediately raise the share price, but if they continue, they ineluctably will. A public corporation's book value is always below market cap -- cases where this isn't true are limited to very small margins in temporary situations.

 

[Thanthan]

That's like claiming you can walk through a thunderstorm without getting wet by simply avoiding each raindrop as it falls. Those other options immediately raise a company's book value. They may not immediately raise the share price, but if they continue, they ineluctably will. A public corporation's book value is always below market cap -- cases where this isn't true are limited to very small margins in temporary situations.

Your reasoning doesn’t take speculation into account. Most of a company’s stock value is not a result of book value, but a result of perceived future value. A good example would be Tesla, having nowhere near the profits to justify its value, but shareholders BELIEVE it will in the future. Similarly, a company can have good fundamentals, but no one who believes it will ever go anywhere, and this low stock price.

And please note, I’m not refuting that a lot of the time, what you’re saying will occur, I’m just saying ‘not all of the time’, and that exceptions to general rules are important.

 

[Endymio]

Your reasoning doesn’t take speculation into account. Most of a company’s stock value is not a result of book value, but a result of perceived future value.

Most? No. The P/B ratio -- price to book -- varies widely by industry. For banks, utilities, real estate, insurance, maritime, telecom, for instance -- all have low P/B's. Established, low-growth AT&T, for instance, at the end of its last fiscal year had a share price of $17.25 when its book value was $16.43 / share ... very near parity. KeyCorp Bank was actually slightly below parity -- its share price was a hair less than book value.

And you may be misunderstanding what I'm saying. In the short term, speculation can (and usually does) outweigh a single quarter's performance. But for every case where $100 in profits fails to raise market cap by less than $100, there's another case where it raises by more than $10.

And over the long term, a company's retained profits always raise market cap by at least as much as the profit's themselves ... if their P/B is above unity, it raises it by more than the actual amount of profit.

 

[gamerk2]

Investors: You made us billions with your AI. We LOVE YOU! You need to make us more billions!

Nvidia: Outlook on returns is a little under projected numbers by a few billion dollars. We still made billions, but just not as many of billions as last time.

Investors: You only made us slightly less billions than the same time last year....you all SUCK! WE HATE YOU! DIE! We wanted more and more and more billions! Not slightly less billions than last year! ARGH!

What a bunch of greedy cucks.

With all that aside, hopefully all this parroting search engine "AI" crap dies down some.

The problem with the current market is that nowadays you gain value by the stock going up, not through a dividend. This mandates companies show to investors ever increasing profits, so when profits are less then expected (even if they are at a record) investors sell as that is an indication profits (and thus, the stock) won't be going up.

 

[gamerk2]

Where do people get this stuff? NVidia's market cap is still 2.6 trillion dollars .. and the "AI bubble" will end about the time the "Internet bubble" does.

The "internet bubble" popped in 2000. And wiped a good 90% of the industry with it. Those that survived became market leaders going forward. This will be no different when all is said and done.

 

[Endymio]

The "internet bubble" popped in 2000. And wiped a good 90% of the industry with it.

The dot-com bubble comprised hundreds -- perhaps thousands -- of corporations that never experienced any solid growth or revenues, never turned a profit, and had no solid business model whatsoever. None of that describes NVidia, or even OpenAI, which currently is generating more than $3.4 billion in revenues, and doubling that figure year after year.

More to the point, the "collapse" of that speculative bubble in no way, shape, or form ended the growth of the Internet itself. The Internet is far more a daily feature of our lives today than when that bubble peaked in 2000.

 

[gamerk2]

The dot-com bubble comprised hundreds -- perhaps thousands -- of corporations that never experienced any solid growth or revenues, never turned a profit, and had no solid business model whatsoever. None of that describes NVidia, or even OpenAI, which currently is generating more than $3.4 billion in revenues, and doubling that figure year after year.

More to the point, the "collapse" of that speculative bubble in no way, shape, or form ended the growth of the Internet itself. The Internet is far more a daily feature of our lives today than when that bubble peaked in 2000.

Entire industries, especially new ones, almost never collapse. But they retract heavily once it's realized there is a massive over-supply of goods and services, and all but the largest simply can not cover the debt they absorbed to get into the market in the first place.

Yes, NVIDIA, OpenAI and the like will be fine. It's the smaller companies, of which there are hundreds, that are both trying to make some form of AI infrastructure and relying on it to generate revenue (somehow) that are going to bust. But the headliners? Those will be fine.

 

[Endymio]

Entire industries, especially new ones, almost never collapse. But they retract heavily once it's realized there is a massive over-supply of goods and services.

But the dot-com bubble burst didn't cause the Internet to "retract heavily" -- even the specific sub-segment of e-commerce saw continual increased volume, year-after-year.

There were admittedly some excessive estimates of growth ... one financial model I saw for 1999-era Cisco would have required individual households to be purchasing $50K routers within 15 years. But even here, the estimates of transformational change were accurate. Essentially all homes today do own routers. They just own $50 ones, not $50,000 ones.

NVIDIA, OpenAI and the like will be fine.

You might want to tell some of the doom-and-gloom posters here that. They're convinced that AI is some sort of scam, rather than a industrial transformation larger than the Internet itself.

 

[gamerk2]

You might want to tell some of the doom-and-gloom posters here that. They're convinced that AI is some sort of scam, rather than a industrial transformation larger than the Internet itself.

Oh, it won't be that, not even close. AI will be an aid certainly, but won't magically result in 80% cost savings through personnel like some claim (yet, at least).