Authors: Noel Randewich and Suzanne McGee

(Reuters) – Shares of artificial intelligence giant Nvidia (NASDAQ:) fell 9.5% on Tuesday, the deepest one-day decline in the history of a U.S. company, as investors tempered their optimism about artificial intelligence amid a broad market sell-off following the release of tender economic data.

Nvidia’s market capitalization fell by $279 billion, a clear sign that investors are becoming more cautious about the emerging artificial intelligence technology that has been a major driver of the stock market’s gains this year.

The PHLX stock index fell 7.75%, its biggest one-day decline since 2020.

The latest concerns about artificial intelligence come after Nvidia released a quarterly forecast last Wednesday that fell compact of investor expectations, sending its shares soaring.

“There’s been so much money pouring into technology and semiconductors over the last 12 months that trading in them has become completely distorted,” said Todd Sohn, ETF strategist at Strategas Securities.

Intel (NASDAQ:) shares fell nearly 9% after Reuters reported that Chief Executive Pat Gelsinger and key executives are set to present a plan to the company’s board of directors that aims to shed unnecessary businesses and revamp capital spending at the ailing chipmaker.

Concerns about slowing returns from gigantic AI investments have dogged Wall Street’s most valuable companies in recent weeks, with shares of Microsoft (NASDAQ:) and Alphabet (NASDAQ:) falling after reporting their quarterly results in July.

“Some recent research has questioned whether AI revenues alone will ultimately justify this wave of AI capital spending. When evaluating individual AI capex, investors need to consider whether they are making the best use of their balance sheets and capital,” BlackRock (NYSE:) strategists wrote in a note to clients on Tuesday.

In July, when Nvidia shares closed at a record high, they have nearly tripled in value in 2024. The latest losses have left the company up 118% year to date.

Tuesday’s weakening in chip stocks was accompanied by gigantic declines on Wall Street, with the Nasdaq losing 3.3% and the US index down 2.1%.

According to CME’s FedWatch Tool, investors expect the Federal Reserve to cut interest rates by 25 basis points in its September 18 announcement.

However, minority expectations for a 50 basis point rate cut rose to 37% from 30% after data on Tuesday signaled that manufacturing activity remained tender.

Investors will receive a slew of data on the labor market this week, culminating in the government’s public sector employment report released on Friday.

“There are concerns about what the employment data will show, related to seasonality,” warned Steve Sosnick, market strategist at Interactive Brokers (NASDAQ:).

The chip index is now expected to rise 14% in 2024, slightly below the 16% gain for the S&P 500.

Nvidia’s record loss in a single trading session was larger than the $232 billion decline suffered by Facebook-owned Meta Platforms (NASDAQ:) on Feb. 3, 2022, when the social media company issued a grim forecast, according to LSEG data.

Following Nvidia’s quarterly earnings report last week, analysts’ average forecast for full-year net income through January 2025 rose to $70.35 billion from about $68 billion before the previous week’s report.

These raised earnings estimates, combined with losses from Nvidia stock, leave the chipmaker’s shares now trading at 34 times expected earnings, down from more than 40 times earnings in June and in line with its two-year average.

Broadcom (NASDAQ:), another chipmaker that has benefited from the boom in artificial intelligence computing, fell 6.2% on Thursday ahead of its quarterly report.