The stock market has taken another beating this week, continuing a weeks-long tech selloff that ignited over fears of a growing AI bubble.
The S&P 500 is down almost 3.5 percent over the last five days alone. The Dow Jones Industrial Average has slid more than a full percent on Tuesday alone.
Looming over it all is AI chipmaker Nvidia’s Wednesday earnings call — results that could send ripples through rattled markets, for good or ill.
Many AI companies have a problem, in the form of an astronomical gap between sky-high valuations and relatively meager revenues. In a sense, Nvidia is more grounded: it builds the physical chips that those companies use to power their AI models, meaning that if there’s an AI gold rush, it’s selling shovels.
That’s worked out well for Nvidia, which hit an unprecedented $5 trillion valuation last month. But it also means that if Nvidia is in trouble, the rest of the AI industry is also in deep trouble — and, as if those stakes weren’t high enough, the untold tens of billions of dollars being poured into data center buildouts are increasingly propping up the remainder of the US economy, meaning that if Nvidia starts to falter, virtually everyone else could be negatively affected.
Essentially, many of the world’s most powerful business leaders are going all-in on AI — while critics say it’s a house of cards that could come down if one load-bearing piece falls out.
The economic underpinnings remain largely theoretical. Despite immense enthusiasm, there still isn’t a “clear financial model for profitable AI,” as the Wall Street Journal noted last week, even as the “Magnificent Seven” — the tech megacorporations Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta Platforms, and Tesla, all heavily invested in AI — represent a whopping 35 percent of the entire S&P 500 index.
Now, the market clearly has jitters. Nvidia alone, which should be the most secure in the AI industry, has lost hundreds of millions in market cap over the last week. The company’s shares are down over seven percent in the past five days and more than three percent on Tuesday alone, indicating a nervous market ahead of Wednesday’s call.
Economic uncertainty is already putting markets on edge, with long-awaited economic data being delayed by the recent US government shutdown. On Thursday, the Bureau of Labor Statistics is set to release its September jobs report, Yahoo Finance reports — which could be good, but could also be very bad.
“The absence of timely official numbers left the markets and the Fed operating in a data fog, forced to scour alternate sources to gauge the underlying outlook,” Bank of America economist Shruti Mishra in a note, as quoted by CNBC. “With the shutdown resolved, all eyes will now be on the incoming data dump.”
Despite macroeconomic “fog” caused by a political standoff in Washington, DC, Nvidia’s earnings call could prove just as impactful, underlining how enormously influential the AI industry has become.
“The monthly jobs report would normally dominate this week’s economic calendar, but with the AI trade struggling the past couple of weeks, Nvidia’s earnings are once again looking like a key piece of the market’s momentum puzzle,” Morgan Stanley’s E-Trade managing director Chris Larkin told CNN.
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