Nvidia stock price falls in a not-so-magnificent week for AI-forward tech giants

Shares of Nvidia Corporation led a broader selloff of AI-forward tech giants this week after two of the so-called Magnificent Seven companies reported earnings news that rattled investors.

The chip designer, whose products are powering vital infrastructure in the artificial intelligence revolution, saw its stock fall almost 7% on Wednesday after starting the week with a slight gain. Here’s what to know:

What’s happening?

Big Tech’s closely watched earnings season is in full swing. Two companies—Tesla and Google parent Alphabet—reported financial results on Tuesday, and both saw their shares fall the following day.

In Tesla’s case, the reaction was relatively straight-forward: The electric vehicle maker reported a 45% drop in net income compared to the same quarter last year. Whatever your thoughts on Tesla’s brand during this politically charged moment, investors typically do not like to see profits plummet.

Interestingly, though, Alphabet actually beat profit expectations, reporting EPS of $1.89 compared to a consensus estimate of $1.84. It saw its shares rise after hours immediately after following the earnings release.

However, investors pulled back once they dug into the details. Notably, YouTube advertising revenue did not grow as much as expected and—perhaps more crucially—Alphabet said its quarterly capital spending jumped to $13.2 billion, in part due to investments as it refocuses its efforts on AI. As Bloomberg reported, analysts were expecting about a billion less than that.

A big question about AI right now is whether or not the costs of building and running new tools will ever come down enough to make the technology’s gains worth the expense, as highlighted in an AI-skeptical report from Goldman Sachs in June. Companies lately have been spending like there’s no tomorrow, but no one really knows how much AI will boost profits in the long run.

In addition to Nvidia, Tesla, and Alphabet all seeing their stocks drop on Wednesday, other Magnificent Seven companies followed. Facebook parent Meta Platforms fell by almost 6% on Wednesday; Microsoft by 3.59%; and Apple and Amazon by almost 3%.

What is the Magnificent Seven?

It’s a name given to the stock market’s seven biggest performers across industries such as tech, retail, and automotive. One thing all of these companies have in common right now is their focus on artificial intelligence. As Investopedia points out, these power players have been outperforming the market this year.

What happens next?

It’s important to point out that the week is not over. As of premarket trading on Thursday morning, most of the Magnificent Seven were flat. Nvidia shares were down by another 1%, but sentiment could change once markets open and investors have had a moment or two to breathe.

Either way, most of the Magnificent Seven have yet to report their quarterly results, so there are still plenty of chances to turn things around. Next week is the big week on that front: Microsoft reports on Tuesday. Meta reports on Wednesday. Amazon and Apple report on Thursday.

As for Nvidia, we won’t truly know how the company fared until it reports its results at the end of August. What we can say for sure is that, whatever happens, it could shape the direction of the entire market in the weeks and months that follow.