Nvidia experienced a historic 9.5% drop in its stock value on Tuesday, marking the deepest single-day decline in market value ever for a U.S. company. The company's market capitalization plummeted by $279 billion, reflecting growing investor caution about the future of artificial intelligence (AI) technologies. This broad market selloff followed the release of tepid economic data, dampening the optimism that had previously driven a strong rally in Nvidia's stock and the broader semiconductor sector.

The PHLX semiconductor index (SOX) also took a significant hit, dropping 7.75%—its largest one-day decline since 2020. The downturn was partly driven by Nvidia's recent quarterly forecast, which failed to meet the lofty expectations of investors. This has raised concerns that the immense capital poured into tech and semiconductor stocks over the past year may have created an imbalanced market.

Intel's stock fell nearly 9% following a Reuters report that CEO Pat Gelsinger and other key executives plan to propose a major restructuring to the company’s board of directors, including cutting unnecessary businesses and overhauling capital spending. This news added to the broader unease about the tech sector.

Investor concerns are also mounting about whether the returns from AI investments will justify the significant capital expenditures being made by companies in this space. BlackRock strategists highlighted that investors must carefully assess whether companies are making the best use of their balance sheets and capital when investing in AI technologies.

Despite Nvidia's recent losses, the company is still up 118% for the year, though this is a sharp pullback from its July record high. The Nasdaq and S&P 500 indices also experienced declines, with the Nasdaq down 3.3% and the S&P 500 down 2.1%.

The market is now closely watching the Federal Reserve's upcoming policy announcement on September 18, with most investors expecting a 25 basis point interest rate cut. However, there is growing speculation about a potential 50 basis point cut following data indicating continued softness in the manufacturing sector.

This week, investors will be paying close attention to labor market data, particularly the key government payrolls report due on Friday. Market strategist Steve Sosnick noted concerns about what the upcoming job numbers might reveal, especially given seasonal factors.

In comparison, Nvidia's record one-day loss in market value surpassed the $232 billion drop Meta Platforms (formerly Facebook) experienced on February 3, 2022, when it issued a disappointing forecast. Despite recent setbacks, analyst estimates for Nvidia's annual net income through January 2025 have risen to $70.35 billion, up from $68 billion prior to the company's latest report. With these revised earnings estimates, Nvidia's stock is now trading at 34 times expected earnings, down from over 40 in June.

Other semiconductor companies have also been affected, with Broadcom, another beneficiary of the AI boom, seeing its stock fall by 6.2% ahead of its quarterly report on Thursday.