As the U.S. markets opened for trading on Monday, tech’s megacap companies experienced a staggering loss of about $1 trillion in market cap. The Nasdaq had already entered correction territory the week prior, but the situation worsened with Nvidia shedding more than $300 billion in market cap at the opening bell. Although the chipmaker managed to recover about half of its loss, its shares were still down by 7% just after 10 a.m. ET. Apple and Amazon also took a hit, with their valuations plummeting by $224 billion and $109 billion, respectively, at the market open. The combined losses of Meta, Microsoft, Alphabet, Tesla, and the aforementioned companies resulted in the seven most valuable tech companies losing $995 billion in the early moments of trading.
Market Reaction and Global Impact
The broader markets also felt the impact of the tech market meltdown, with concerns about a potential recession looming large following disappointing economic data last week. Japan’s Nikkei 225 index plummeted by 12% on Monday, marking its worst day since the 1987 “Black Monday” crash on Wall Street. In addition, Bitcoin experienced an 11% drop, triggering a sell-off in cryptocurrency and related stocks. The nervousness among investors in the technology sector has been building for weeks, as evidenced by the Nasdaq’s 3.4% slump last week, which concluded its worst three-week stretch in two years. Reports from Amazon, Alphabet, and Microsoft only added to Wall Street’s concerns, contributing to a broader slide among tech stocks.
It is worth noting that just a few months ago, investor sentiment towards tech companies was positive, particularly after Meta and Google announced heavy investments in artificial intelligence infrastructure. Nvidia, a lesser-known company to the average American, emerged as a significant player in the AI space, thanks to its graphics processing units (GPUs) powering the AI boom. The company’s market cap exceeded $3 trillion, briefly surpassing industry giants like Microsoft and Apple to become the world’s most valuable company. However, the current market turbulence has brought about skepticism regarding the sustainability of this growth.
Several analysts have raised concerns about a potential overinvestment in AI, with a Goldman Sachs note from June cautioning that major-spending companies had little to show for their AI expenditures. The hedge fund Elliott Management even went as far as labeling Nvidia as being in a “bubble,” while describing the AI frenzy as “overhyped.” With Nvidia set to report its earnings later this month, all eyes will be on the company’s ability to sustain its remarkable revenue growth of over 200% for the past three quarters.