Nvidia stock drops 5% as AI sector selloff rattles investors

Nvidia’s stock plunged more than 3% in early trading Wednesday, extending its weekly decline to over 5%, while other AI industry leaders including Google, Meta, Tesla, and Palantir also saw significant drops. The selloff has rattled investors across the AI sector, with analysts struggling to pinpoint specific causes behind the sudden retreat from what had been a meteoric rise in AI-related stocks.

What you should know: The decline comes despite Nvidia’s position as the dominant supplier of AI hardware, making its struggles particularly concerning for the broader industry.

• Nvidia has been the primary beneficiary of the AI boom, selling the specialized chips that power AI data centers and training operations.
• Palantir, an AI software company, saw its stock fall nearly 9% in morning trading, despite both companies hitting all-time highs earlier this month.
• Palantir alone had risen more than 150% since April before this week’s decline.

The big picture: Analysts are searching for concrete explanations behind the selloff, with several potential factors emerging.

• Reuters reported that Nvidia was developing a new generation AI chip for the Chinese market that could potentially outperform its current H20 model.
• AI data center company CoreWeave saw a 38% collapse following its Q2 earnings, potentially signaling broader concerns about AI infrastructure valuations.
• CEO Jensen Huang sold 150,000 shares for tens of millions of dollars last week, though the sale was pre-planned in March and triggered by predetermined price and volume parameters.

Why this matters: The sudden decline raises questions about whether the AI industry is experiencing a market correction similar to the dot-com bubble.

• Even OpenAI CEO Sam Altman acknowledged last week that “investors as a whole are overexcited about AI.”
• Sky-high valuations across the AI sector have prompted comparisons to the dot-com era, with some analysts warning of bubble-like conditions.
• If Nvidia—the “shovel seller” in the AI gold rush—struggles, it signals potential broader industry concerns.

What analysts are saying: Despite the recent decline, Wall Street remains optimistic about Nvidia’s long-term prospects.

• “NVDA is now the most under-owned large-cap tech stock,” Morgan Stanley analyst Erik Woodring wrote in a note this week, as quoted by Yahoo Finance.
• Investors expect strong Q2 results when Nvidia reports earnings next week, given enormous sales and continued AI optimism.
• The company’s previous drops have repeatedly been met by investors buying the dip, sending shares to new highs.

Looking ahead: The duration of Nvidia’s stock decline remains uncertain, with the company’s Q2 earnings report due in a week potentially serving as a catalyst for recovery or further concerns.