The U.S. markets opened on a somber note on Monday, with tech’s megacap companies experiencing a massive loss of about $1 trillion in market cap. This downturn deepened a downward spiral that had already sent the Nasdaq into correction territory the previous week. Nvidia, one of the leading chipmakers, saw more than $300 billion wiped off its market cap at the opening bell, signaling a turbulent day ahead. Although the company managed to recover about half of its losses, its shares were still down 7% by 10 a.m. ET. Apple and Amazon also suffered significant blows, losing $224 billion and $109 billion in valuation, respectively, when the markets opened.
The broader market decline on Monday was driven by concerns about a looming recession sparked by disappointing economic data released the previous week. The Nikkei 225 in Japan plummeted by 12% on Monday, marking its worst day since the 1987 “Black Monday” crash on Wall Street. The sell-off extended beyond traditional stock markets to the volatile world of cryptocurrency, with Bitcoin leading the way by dropping 11% and triggering a wider sell-off in related stocks.
Within the technology sector, investors have been on edge for weeks as the Nasdaq struggled, recording a 3.4% decline the previous week and completing its worst three-week stretch in two years. Companies like Amazon, Alphabet, and Microsoft added to the anxiety on Wall Street with reports that failed to meet expectations, contributing to a downward spiral among their peers. This stark reversal comes after months of optimism when Meta and Google announced heavy investments in their artificial intelligence infrastructure, which had initially boosted investor confidence.
Nvidia’s meteoric rise, driven by its GPUs powering the AI boom, has also raised concerns about potential overinvestment in the sector. The company briefly surpassed Microsoft and Apple to become the world’s most valuable company, reaching a market cap of over $3 trillion before dropping to below $2.5 trillion. Analysts have cautioned against the exuberance surrounding AI, with Goldman Sachs warning in a note from June about the lack of tangible results from the significant investments made by leading companies. Elliott Management, a major hedge fund, even went as far as describing Nvidia as being in a “bubble” and the AI frenzy as being “overhyped.”
The tech sector is facing significant headwinds, with concerns about a recession, disappointing economic data, and potential overinvestment in artificial intelligence contributing to the recent market turmoil. Investors will be closely watching Nvidia’s upcoming earnings report to gauge the health of the sector and the broader market.