September 3, 2024, will be marked as the worst day for Nvidia (NVDA) to date, as its stock lost $279 billion in market capitalization and the company was subpoenaed by the U.S. Department of Justice (DOJ). NVDA stock fell 9.5% yesterday, witnessing its sharpest one-day loss ever. Moreover, NVDA shares slid 2.4% in after-hours trading, following the subpoena news.
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Nvidia has emerged as one of the biggest beneficiaries of the AI hustle, with its stock gaining 118% so far this year. Interstingly, CEO Jensen Huang is determined to turn Nvidia into a data center powerhouse, offering hardware, software, super-fast networking capabilities, and data center design services.
Here’s What Sparked the Sell-Off in NVDA Stock
Shares of Nvidia led a major sell-off of AI stocks yesterday, as investors grew more cautious about the slow returns on hefty AI investments. Strategists from Blackrock stated that their latest research questions if revenues from AI alone could justify the billions of dollars spent by companies on building their AI capabilities. The experts cautioned investors to assess the risk-reward profile of individual companies’ AI expenditures before investing in their stocks.
Similarly, an expert from JPMorgan Asset Management commented yesterday that the massive AI spending can only be justified when the AI demand starts increasing from sectors other than tech. These comments and the looming uncertainty related to interest rate cuts in the U.S. led to a sharp sell-off in tech stocks on Tuesday.
Nvidia Faces DOJ’s Scrutiny
According to Bloomberg, the DOJ has sent subpoenas to Nvidia and other tech companies to probe the former’s monopolistic behavior after receiving several complaints. Regulators are concerned that Nvidia is using its dominant position in the AI chip market to force customers to buy its chips. The company is also accused of giving preferential pricing for complete system purchases and penalizing customers who are not exclusively using NVDA’s AI chips.
Additionally, the DOJ is investigating Nvidia’s acquisition of Run:ai, which makes software for managing AI computing. Competitors worry that the acquisition will further strengthen Nvidia’s position in the AI chip market and make it harder for customers to buy other products. It is worth noting that Nvidia is being probed for anticompetitive behavior by the U.S., South Korea, UK, EU, and China.
Meanwhile, a spokesperson for Nvidia stated that the company wins work on its merit and performance. The spokesperson even cited NVDA’s solid results and affirmed that customers are allowed to choose whatever products suit them.
Is Nvidia a Buy or Sell?
Despite the ongoing noise, analysts are highly optimistic about Nvidia stock’s trajectory as it is the largest AI play. On TipRanks, NVDA stock has a Strong Buy consensus rating based on 39 Buys versus four Hold ratings. The average Nvidia price target of $151.79 implies 40.6% upside potential from current levels.
