On September 3, the share price of US AI giant NVIDIA (NASDAQ: NVDA) fell sharply by 9.5%, one of the largest single-day market value drops for US companies. The decline reflects that investors' expectations for artificial intelligence technology have declined, and weak economic data has triggered a broad market sell-off.

Nvidia's market value evaporated by $279 billion in one day, indicating that investors are increasingly concerned about the prospects of emerging AI technology, which has previously driven a sharp rise in the stock market this year.

Chip sector plummeted

The Philadelphia Semiconductor Index (PHLX Chip Index) fell 7.75% in a single day, the largest drop since 2020. The AI-related market concerns stem from Nvidia's quarterly forecast released last Wednesday that was lower than investors' high expectations, after the company's stock price rose sharply.

"Too much money has been poured into tech and semiconductors over the past 12 months, leading to a heavy skew in trading," said Todd Sohn, ETF strategist at Strategas Securities.

Intel shares suffered a setback

In addition, Intel (NASDAQ: INTC) shares fell nearly 9% as CEO Pat Gelsinger and other executives will present a strategy to the board to cut unnecessary businesses and reform the chip giant's capital expenditures.

AI investment returns raise concerns

In recent weeks, questions about the delayed returns on massive investments in artificial intelligence have continued to plague the market, and shares of Microsoft (NASDAQ: MSFT) and Google's parent company Alphabet (NASDAQ: GOOGL) have also fallen after their July earnings reports.

"Some recent studies have questioned whether the benefits of AI alone justify such large capital investments," BlackRock (NYSE: BLK) strategists said in a client note. "Investors should analyze whether they are using their balance sheets and funds effectively when evaluating individual companies' AI capital expenditures."

As of July this year, Nvidia's stock price had nearly tripled to a record high, but the recent decline has reduced its year-to-date gains to 118%.

Markets generally fall

On September 3, the plunge in technology stocks echoed the overall decline on Wall Street, with the Nasdaq index falling 3.3% and the S&P 500 index falling 2.1%.

According to CME's FedWatch tool, most investors expect the Federal Reserve to cut interest rates by 25 basis points in its policy statement on September 18. However, after the release of sluggish data on manufacturing activity, a few expected the probability of a 50 basis point cut by the Federal Reserve to rise from 30% to 37%.

Investors will face a large number of labor market data this week, the most important of which is the government's non-farm payrolls report on the 6th.

"There's a concern that the seasonality of the jobs data will reflect changes in the market," said Steve Sosnick, market strategist at Interactive Brokers.

Market Valuation Adjustment

The chip index has risen 14% so far this year, second only to the S&P 500's 16% gain. According to LSEG data, Nvidia's record single-day market value evaporation surpassed the $232 billion market value drop caused by Facebook's parent company Meta Platforms (NASDAQ: META) on February 3, 2022 after issuing a pessimistic outlook.

Since Nvidia released its quarterly report last week, analysts raised their net revenue expectations for the year ending January 2025 from $68 billion to $70.35 billion.

As higher earnings forecasts and Nvidia's stock price fell, the chipmaker's price-to-earnings ratio fell to 34 times from 40 times in June, close to its two-year average.