Tech Stocks Plummet as NVIDIA Leads Major September Market Decline

Tech Stocks Plummet as NVIDIA Leads Major September Market Decline

We highlight that September is historically the toughest month for the overall market especially for tech stocks

True to form today has been brutal for the tech sector particularly the Magnificent 7 with NVIDIA plummeting as much as 8 percent falling below 110 dollars and the semiconductor index SMH dropping over 6 percent This marks a more severe one-day decline than the August 5th crash and is the second worst day of 2024 for semiconductors

Goldman tech trader Peter Bartlett noted that the sharp decline in semiconductors was the most frequently asked question from clients returning after the holiday Unfortunately Bartlett admitted there isn't a single clear reason for the weakness Early feedback suggests that the price drop could be due to several factors

A post-earnings supply in NVIDIA as investors return after the holiday week Last week's earnings report faced some criticism for a narrower EPS beat and guidance with less wow factor compared to previous quarters along with normalizing gross margins Additionally some high-end buy-side estimates actually decreased following the report NVIDIA's 7 and a half percent drop the largest one-day move since April set the tone for the broader sector

The impact of negative seasonality with semiconductors down for four consecutive Septembers averaging a 4 and a half percent decline over that period

Reports that OpenAI is developing in-house AI chips which despite being positive for TSMC saw the stock trading down 6 percent There were also stories about the completion of the xAI datacenter buildout

The market is entering a busy period of microeconomic data with AVGO earnings on Thursday Citi's TMT conference starting today and Goldman's Tech and Communacopia conference next week where Jensen will speak

Bartlett mentioned that while the initial price action looks grim client feedback doesn't indicate high levels of concern as many investors particularly hedge funds have significantly reduced their positions in this sector The Gen AI theme is now being debated much more than it was two to three months ago according to Goldman's TMT specialist Peter Callahan

Bartlett also pointed out a shift in recent client trading patterns with Goldman's data showing a move away from semiconductors towards software among active clients

The Goldman trader concluded by sharing his Nvidia Chart of the Day comparing NVDA's stock performance in 2023 green line to its 2024 year-to-date performance blue line He noted that the current debate is whether NVDA will follow a similar holding pattern as last year in quarter four until there is more clarity on long-term prospects for example how this will affect the multiple investors are willing to pay for 2025 earnings

Not all Magnificent 7 stocks are suffering uniformly Tesla the most disliked stock among hedge and mutual funds according to a 13F analysis is outperforming today UBS reported that Tesla plans to produce a six-seat version of its Model Y in China by late 2025 with a revamp under the Juniper project launching in early 2025 This comes despite the market's earlier skepticism as reflected in analyst Joe Spak's downgrade of Tesla to Underperform with a 197 dollar price target

In essence today is another example of how the market can inflict maximum pain on the majority of traders when everyone is on the same side of the trade