Nvidia’s $240 Billion Swoon Leads Rout in Semiconductor Stocks

(Bloomberg) -- Nvidia Corp. shares are tumbling and dragging the rest of the semiconductor complex down with it.

The chipmaker fell as much as 8.4% on Tuesday in the wake of its earnings report last week that failed to live up to lofty expectations. The selloff erased more than $240 billion and helped fuel a 6.1% selloff in an index of 30 chip-related companies. 

To Paul Nolte, market strategist and senior wealth manager at Murphy & Sylvest Wealth Management, Nvidia’s selloff is likely the result of post-earnings malaise, combined with a broader rotation into cheaper stocks.

Nvidia and AI stocks “have been the stars of the market for a while and it isn’t surprising to see them take a back seat for a while,” he said. “There’s still a big question about the ROI from all this spending.”

The drop in semiconductor stocks comes amid lingering questions about the sustainability of heavy spending on hardware used in artificial intelligence computing. Nvidia and other chipmakers have seen revenue surge amid heavy spending by companies like Microsoft Corp. and Alphabet Inc. But those buyers have showed relatively little revenue growth from the outlays and there’s concern about how long that can continue. 

Intel Corp., whose shares are the second-worst performing in the Philadelphia semiconductor index this year, was among the biggest decliners on Tuesday, falling as much as 7.4%. The company is said to be exploring various options with investment bankers, including a split of its product-design and manufacturing businesses, Bloomberg reported last week.

Chip equipment makers KLA Corp. and Applied Materials Inc. also fell more than 6%. Taiwan Semiconductor Manufacturing Co., the world’s biggest contract manufacturer of chips, dropped 6.5%.

Nvidia has now fallen 12% in the three days following its Aug. 28 earnings report. The stock remains the best performer in the S&P 500 this year with a gain of 122%.

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