Inside Nvidia’s $500 Billion Wipeout

Nvidia’s fall to earth

It looks like another volatile day for Nvidia shareholders. And given the company’s enormous influence on the entire S&P 500, they may not be the only investors facing big swings.

A head-snapping recap: The chip maker that rode the artificial intelligence boom to become the world’s most valuable public company last week has fallen into correction territory. It closed Monday down roughly 16 percent from its intraday high on Thursday, shedding more than $550 billion in value — roughly the size of Tesla’s market capitalization — offering the markets a tough reminder that the A.I. rally could become harder to sustain.

Investors are processing other points of concern. Mary Daly, the president of the San Francisco Fed, warned Monday of a slowdown in the labor market hitting the U.S. economy. “At this point, inflation is not the only risk we face,” she said.

Another big piece of data comes out on Tuesday: The Conference Board is set to release its monthly consumer confidence index. Markets will closely scrutinize that for households’ take on the economy.

That said, analysts are still bullish on Nvidia and A.I. The company has repeatedly blown past Wall Street’s forecasts as demand surges for its chips, which power Big Tech data centers and A.I. systems.

Last month, Nvidia said that its fiscal first quarter sales had grown more than threefold from the same period a year ago. That prompted Jensen Huang, the company’s C.E.O., to declare that “the next industrial revolution has begun.” Its stock then went on a tear, taking just 23 trading sessions to add $1 trillion to its market cap, according to Deutsche Bank.

Few on Wall Street have seen a run like Nvidia’s, making it hard to assess the company’s value.

Some see the company’s fall as a healthy readjustment. “While we do believe in A.I., there have been signs of over exuberance in the U.S. market over the last month,” Jim Reid, a strategist at Deutsche Bank, wrote in an investor note on Monday.

Other market watchers suggested that investors may be harvesting some of their gains from the huge run-up in Nvidia and other A.I.-related stocks. (Huang sold roughly $95 million worth of shares in recent days as part of a prearranged transaction.)

Other frothy assets are coming back to earth, too. Bitcoin was up slightly on Tuesday after having dropped 7 percent over the past week, to below $60,000 on Monday. But the cryptocurrency is now down about 15 percent in the past month.

A potential culprit: Traders have been pulling money out of exchange-traded funds tied to Bitcoin as investor enthusiasm fades.

Not everything is down. About 70 percent of the S&P 500 rose on Monday. But with tech stocks such a dominant force in the benchmark index’s overall weighting, the S&P 500 limped to a loss.

HERE’S WHAT’S HAPPENING

The E.U. charges Microsoft with violating antitrust rules related to its bundling of Teams. The European Commission said the tech giant broke competition rules by tying the collaboration software to its popular Office 365 and Microsoft 365 product suites, and changes made last year didn’t go far enough. The announcement comes a day after European regulators accused Apple of stifling competition on its App Store.

Boeing’s deal to buy back Spirit AeroSystems is said to hit a snag. The plane maker was in advanced talks with the aerospace parts supplier for a cash-financed deal as recently as this past weekend, before changing to a mostly stock-based acquisition at the last minute, The Wall Street Journal reports. Boeing has said that buying Spirit would bolster the safety and quality of its manufacturing after a series of episodes have drawn regulatory scrutiny.

A senior investment banker who was filmed striking a woman resigns. Jonathan Kaye ran global business services at Moelis & Company but left after being placed on leave when a video of an altercation during a Brooklyn Pride event was shared widely online. A representative for Kaye said he would cooperate with the police.

The bar for capital requirements gets lower

Wall Street may be closer to getting its wish: The Fed is weighing potential changes to a pending banking regulation overhaul that include raising capital requirements by far less than previously proposed, according to Bloomberg.

That would be a victory for American lenders, who have lobbied hard to water down new rules. It would be a further retreat from the calls for tougher regulations that emerged after last year’s banking crisis.

What’s being discussed, according to Bloomberg: a proposed 5 percent rise in so-called Tier 1 capital requirements for the nation’s biggest lenders, down from the originally proposed 16 percent increase. The changes are known as “Basel III endgame” and are linked to an international framework for banking rules that have been in the works since the 2008 global financial crisis.

Jay Powell, the Fed chair, suggested alterations to the banking regulation overhaul were afoot: He told lawmakers in March that he expected “that there will be broad and material changes to the proposal.”

Banks have argued loudly that the original proposal was too onerous, restricting their ability to lend. (It’s an argument that has won over unexpected allies, including groups that support greater lending to largely Black and Hispanic neighborhoods.) They’ve also said that the proposed 16 percent increase would put them at a disadvantage to their European rivals, given that the European Union has proposed raising requirements by 10 percent.

That said, the E.U. last week announced that it would delay implementation, saying lenders on both sides of the Atlantic should be on a level playing field.

American lenders also complained that the burden would be too hefty, given that they were grappling with a slug of rapidly souring commercial real estate loans. Proponents of tougher requirements say banks could avoid capital shortfalls if they stopped paying out large dividends and buying back stock.

Bank investors appeared to celebrate the news: The KBW banking index, which tracks 24 major lenders, rose 1.65 percent on Monday.

It’s not a done deal. The Fed must still persuade the F.D.I.C. and the Office of the Comptroller of the Currency to agree to such a move. While officials from those regulators are open to some changes, they have suggested that they would balk at any capital requirement increase they believe is too low, Bloomberg reports.

Chasing the C.E.O. vote

A big question on Wall Street ahead of the first U.S. presidential debate on Thursday is which candidate will get corporate America’s vote. That’s come into sharper focus as Donald Trump has closed the fund-raising gap with President Biden.

Some business leaders, like the investor David Sacks, have publicly backed the former president, while others, like the financier Ken Griffin, are considering it. But there is little sign that C.E.O.s are abandoning Biden en masse, The Times reports.

Executives who have traditionally supported Democrats are still donating to Biden. Business leaders including Brad Smith, Microsoft’s president, Marissa Mayer, Yahoo’s former C.E.O., and Mark Cuban, the billionaire entrepreneur, have all given money, filings released last week by the Federal Election Commission showed.

Still, executives have plenty of gripes about Biden, including:

• Regulation. The Biden administration has been more aggressive than its predecessors. Gary Gensler of the S.E.C. and Lina Khan of the F.T.C. have been particular targets of criticism.

• Tax. Biden has proposed raising the corporate tax rate to 28 percent when Trump-era cuts expire next year, from 21 percent, and as well as higher taxes on the wealthy. That’s well below the 35 percent level before the 2017 cuts, but Trump has said he would reduce them to 20 percent.

• Messaging. Biden has hit out at “corporate greed” and has publicly aligned himself with organized labor more often and more explicitly than previous Democratic presidents.

Biden administration officials are trying to improve relations. The president has met with corporate leaders including executives of Marriott, United Airlines and Xerox.

One argument in their favor is the strength of the economy, as many businesses report record profits.

Some executives worry a Trump return would lead to uncertainty and policy U-turns. They’re also concerned about his tough talk on immigration and trade, policies that some commentators say would add to the federal deficit and be inflationary. And there are fears that he may seek to undermine the independence of the Fed.

“I have five members of the family working in the group. Let’s see if one of them has the capacity to take over.”

— Bernard Arnault, 75, the C.E.O. of LVMH, to Bloomberg Businessweek on which of his children might be his successor at the luxury behemoth.

The surgeon general takes on guns

The U.S. surgeon general is making news again. Vivek Murthy on Tuesday declared gun violence a public health crisis, just days after calling for a warning label on social media as he weighs in on a second hot-button political issue ahead of the election.

It’s the first time a surgeon general has issued an advisory on gun violence. Health officials have for years called for it to be treated as a public health issue, only to see it devolve into a political morass.

Murthy’s recommendations echo public health approaches to smoking and traffic safety. They include more funding for research, but also that health workers discuss gun storage best practice with patients during medical visits, and safe storage laws.

Efforts to elevate the problem to a public health issue have faltered. The National Rifle Association has long opposed this framing, and lobbied hard against Murthy’s confirmation as surgeon general during the Obama administration. (Murthy was reappointed by President Biden after Donald Trump replaced him.)

And some of Murthy’s recommendations, like a background check on buyers or an assault weapons ban, have historically been stymied by political infighting.

The surgeon general’s position was largely stripped of many responsibilities in the 1960s, making the role largely about communicating health issues. In his second term, Murthy has released advisories on youth mental health, loneliness and social media.

In a Times Guest Essay last week, he called for warning labels on social media, adding his voice to efforts to constrain the power of Big Tech to potentially harm children.

THE SPEED READ

Deals

• KPS Capital Partners agreed to sell its Eviosys packaging business for $4 billion, reaping a nearly $2 billion windfall. (FT)

• Goldman Sachs appointed John Hess, the C.E.O. of the oil and gas company that bears his family’s name and a longtime client, to its board. (Goldman Sachs)

Elections, politics and policy

• The billionaire Ken Griffin agreed to settle a lawsuit against the I.R.S. over a leak that led to his tax data being reported on by ProPublica. (Bloomberg)

• How gridlock in Congress is threatening to unravel an international agreement for taxing multinational tech giants. (FT)

Best of the rest

• China became the first nation to bring back soil from the far side of the moon. (NYT)

• London police detectives looking into a phone-hacking scandal involving a Murdoch-owned newspaper in 2011 came to doubt whether Will Lewis — then a senior leader of the company and now the C.E.O. of The Washington Post — was really cooperating, according to a new investigation. (NYT)

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