September opens with a black day! NVIDIA plunges 9.5%, dragging down chip stocks and the US stock market. What happened?

On Tuesday, September 3, the first trading day of September in the U.S. stock market after the long weekend, "brutal" became a fitting adjective, with "plunge" being used to describe the leading decline of NVIDIA and other chip stocks throughout the day.

NVIDIA opened 2.8% lower with a continuous decline, closing down 9.5%, pushing the stock price to below $108, the lowest in three weeks since August 9, shrinking the market value by $279 billion, further distancing the total market value from the $3 trillion mark, with NVIDIA's double long ETF falling by about 19%.

The Philadelphia Semiconductor Index, as an industry benchmark, plummeted by 7.8%, **breaking through the 5100 to 4800 point range, hitting a three-week low since August 12. The ETF SMH tracking this benchmark fell by 7.5%, marking the largest single-day drop in a month.

Other chip stocks didn't fare well either. Intel, a direct competitor to NVIDIA, fell nearly 9% from its one-month high, AMD dropped nearly 8% to a three-week low; TSMC, the world's largest chip foundry, listed in the U.S. fell by 6.5%, while another major wafer foundry leader, GlobalFoundries, dropped by 8.6%; chip equipment manufacturers KLA fell by 9.5%, Applied Materials by 7%, ASML by 6.5%; Qualcomm fell by 6.9%, Broadcom, set to release its third-quarter report on Thursday, fell by over 6%, and Micron Technology dropped by about 8%; ARM, which rose against the market when NVIDIA fell last Thursday, also fell by nearly 7%.

One of the reasons for the sharp decline in chip stocks: poor manufacturing, following the overall market plunge before the heavyweight employment data is released

Market analysis points out that the sharp decline in chip stocks today is following the trend of the overall market plunge in the U.S.

U.S. stock indices collectively hit their largest decline since August 5, when concerns about a U.S. economic recession were sparked by the July non-farm employment data. This Tuesday, two sets of August manufacturing data in the U.S. continued to show a contraction, reigniting investor concerns about the slowing U.S. economy and triggering stock market sell-offs.

The Nasdaq 100 index, which is dominated by tech stocks, widened its decline to 3%, while the Nasdaq fell by over 3% to its lowest level since August 12. The S&P 500 index fell by over 2% to its lowest level since August 14, and the Dow Jones Industrial Average, which is dominated by blue-chip stocks, fell by 1.5% or over 620 points, dropping below 41,000 points to its lowest level since August 22. The "fear index" VIX, which measures short-term volatility in the S&P, surged by over 40%, approaching 22.

Barron's cited Dow Jones market data, stating that the "Big Seven Sisters of U.S. tech stocks" fell by 7.6% at one point on Tuesday, marking the largest percentage drop since April 19:

"This sell-off appears to be part of sector rotation rather than being driven by specific news in the chip industry. September is often a challenging month for the stock market, and investors seem to be intentionally selling stocks ahead of a series of economic data releases Next, after NVIDIA released its financial report last Wednesday after the market closed, it has been continuously declining, highlighting concerns about the company being overvalued, the slowdown in revenue growth, sustainability of the overall AI chip investment frenzy, and dragging down chip and AI stocks.

Bill Blain, founder of Wind Shift Capital and senior strategist, stated that the drop in NVIDIA's stock price is sending a strong "sell" signal to US stock investors, and its significant previous rise and huge valuation may indicate that the forty-year market cycle has peaked:

"I have just found the best reason to sell NVIDIA, confirming that we are at the market top. What will happen next? With countries vying for strategic resources, inflation and interest rates rising in the next twenty years, and a global commodity supercycle about to weigh on the stock market."

Why NVIDIA is dragging down chip stocks: Market doubts sustainability of massive AI hardware investments

On one hand, despite NVIDIA achieving solid performance with doubled revenue and EPS growth, as well as record high revenue in the second quarter of its 2025 fiscal year ending in July compared to the high base of the same period last year, its revenue guidance for the next quarter is $32.5 billion.

This represents a slowdown in revenue growth from triple-digit percentages for several consecutive quarters to nearly 80% year-on-year, interpreted by some as a sign of cooling demand for its AI chips, which after the financial report hit the stock prices of chip manufacturers providing memory and other components to NVIDIA.

Over the past year, chip stocks led by NVIDIA have been strong performers, mainly because people optimistically believed that the new wave of artificial intelligence would require companies to purchase more semiconductors and memory to meet the increasing computational demands of AI applications.

However, Paul Nolte, market strategist and senior wealth manager at Murphy & Sylvest Wealth Management, pointed out that it is not surprising that NVIDIA and other "market stars" such as popular AI stocks are temporarily taking a back seat, as the return on investment for all these expenditures remains a big question. The decline in chip stocks indicates skepticism about the sustainability of investing large sums of money in AI computing hardware:

"Driven by heavy investments from companies like Microsoft and Alphabet in AI and chips, NVIDIA and other chip manufacturers have seen a surge in revenue. But the revenue growth these buyers are getting from (AI) spending is still relatively small, and people are worried about how long this situation can last."

This also puts Broadcom's financial report after Thursday's market close under scrutiny, providing an opportunity to observe whether the market's enthusiasm for artificial intelligence trends is waning.

Why has NVIDIA's stock been falling for several days despite a solid second-quarter report: Analysis suggests it is "digesting the growing pains"

At the same time, for NVIDIA itself, since the closing price before the financial report on August 28th, it has dropped by 14% in less than a week, mainly because although its financial report was solid, it was "not outstanding," at least not good enough for Wall Street with high expectations.

Ken Mahoney, CEO of Mahoney Asset Management, stated that the "angry reaction" to NVIDIA's financial report indicates that after witnessing its stock price soar over 700% since early 2023, investors have become accustomed to NVIDIA's financial reports not only exceeding market expectations, Moreover, it will "completely destroy" expectations, which makes NVIDIA's stock "priced perfectly," with too limited room for error.

Bill Maurer, a columnist for the U.S. stock research website Seeking Alpha, believes that NVIDIA's price drop after the financial report is "digesting some growth worries." Due to its stock price doubling in the past year, the high expectations held by investors and analysts have led to the company's latest financial report showing revenue and profits exceeding market expectations by the smallest margin in five quarters, reflecting the huge challenge of meeting continuously soaring expectations.

Furthermore, NVIDIA's stock price is currently far above the 200-day moving average level, "the stock price is quite high in the long run." In addition, the market dynamics of "buying rumors, selling facts" may occur after the Federal Reserve's interest rate cut in September, which is unfavorable for the high valuation of NVIDIA:

"One of the key issues that investors and analysts will focus on in the coming quarters is gross margin. The non-GAAP gross margin in the second quarter fell by more than 3 percentage points, and it is expected to further decline in the second half of the fiscal year. Currently, profit margins are under pressure from the start of Blackwell's mass production.

As we move forward, NVIDIA's overall revenue growth will begin to slow slightly, as the revenue challenges in each subsequent quarter are significant, and it is extremely difficult to maintain revenue growth of 100% or more in the long term.

Whether NVIDIA can achieve these goals will depend on the production growth of Blackwell, the mass production of this super chip has been delayed by one quarter to start in the fourth quarter of this year and continue into the 2026 fiscal year.

During the conference call, management expects Blackwell's revenue in the fourth quarter to reach billions of dollars, and this number should increase significantly next year, but analysts did not get as much information as they had hoped, which may be one of the reasons for the stock's pressure."

Mainstream analysts still bullish on NVIDIA's long-term prospects, Musk hints at continuing to buy a large amount of AI chips

However, despite NVIDIA's recent stock price decline, most analysts still maintain a "buy" rating on it, with the target stock price representing some room for further increase, and most people still bullish on NVIDIA's "long-term good prospects."

For example, Tesla CEO Musk warned this week that despite recent investor concerns, demand for NVIDIA's existing product line of chips remains strong. His AI startup xAI successfully launched the Colossus AI training infrastructure in just 122 days, powered by 100,000 NVIDIA H100 GPUs, becoming the "world's most powerful AI training system," and will integrate into the NVIDIA H200 chip in the future, achieving a "doubling in scale" within a few months

The Motley Fool, a US investment research website, believes that selling investors seem to overlook that, apart from the data center, every business line of NVIDIA has achieved year-on-year growth, even the once struggling gaming division. In contrast, AMD's second-quarter gaming chip sales plummeted by nearly 60% year-on-year, indicating that even in a market where competitors are struggling, NVIDIA can maintain strong demand:

"Furthermore, in terms of price-to-earnings ratio (P/E ratio), NVIDIA's valuation does not seem too high compared to major competitors AMD and Intel.

The business strength shown in its financial report also leads people to believe that NVIDIA will capture 70% to 95% of the artificial intelligence GPU market. The artificial intelligence industry is expected to grow from $136 billion in 2020 to $826 billion in 2030. Long-term investors can enjoy years of industry growth and receive returns from holding NVIDIA stocks."