Nvidia price plunges 8 percent: this is the reason

Nvidia's share fell by 8 percent on Thursday. Tech stocks are taking a huge hit on Wall Street this afternoon as investors fear that Democratic gains in the US midterm elections will slow the construction of AI data centers. It is precisely the companies that earn the most from this building fury that go down the deepest drain.

In the first half hour after the opening at 15:30 Dutch time, about 1.3 trillion dollars in market value evaporated in US tech stocks. That's over $40 billion per minute. According to The Kobeissi Letter, the S&P 500 had lost $2 trillion after 40 minutes of trading, erasing the entire post-election rally.

Nvidia, as the world's largest chipmaker and most valuable company, is at the forefront of the AI investment wave. The share already lost 2.8 percent on Wednesday, while the rest of the tech sector was still rising at the time. Thursday saw a drop of 7.5 percent on top of that.

The reason for this is Tuesday's results. The Democrats won the majority in both the House of Representatives and the Senate, and Democratic politicians in several US states want to impose stricter restrictions on the construction of large data centers, partly due to electricity and water consumption.

For most tech companies, that seemed like good news on Wednesday. Microsoft, Amazon, and Apple were up more than 5 percent at the time as investors counted on spending less on AI infrastructure. For the suppliers of that infrastructure, it is exactly the other way around: fewer data centers means less demand for chips, servers and computing capacity. In addition to Nvidia, AMD, CoreWeave, Nebius and Super Micro Computer are also under pressure.

Add to that the high appreciation. Nvidia has risen sharply this year on the expectation that AI spending by tech companies will continue to grow for years to come. Any indication that that growth is levelling off will hit the stock harder than the rest of the market.

The turmoil comes at a time when the market was already nervous anyway. Chip stocks have already been hit by doubts about a bubble in AI infrastructure in recent weeks, and Friday sees the US job report for October.

Strong figures increase the likelihood of a rate hike by the Fed in December, which traders already estimate at almost 80 percent according to the CME FedWatch Tool. Higher interest rates are generally bad news for highly valued tech stocks.

Whether Thursday's decline is a correction or the beginning of a larger wave of sales will probably only become clear on Friday.