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Nvidia (NVDA) shares led a sharp decline in the technology sector on Friday, tumbling as much as 4% as investors reassessed valuations tied to artificial intelligence (AI). The sell-off capped a volatile week for the chipmaker, which is now down nearly 10% over the past five trading days amid mounting concerns that AI enthusiasm may have overheated parts of the market.
The broader decline also swept across the so-called “Magnificent Seven” — a group of mega-cap tech stocks including Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia — which have been driving much of Wall Street’s momentum throughout 2024. But growing skepticism about AI-driven profits, coupled with echoes of the dot-com boom and bust, has sparked fresh debate about sustainability in valuations.
AI Bubble Concerns Intensify
In recent weeks, analysts and investors have increasingly compared the current surge in AI stocks to the speculative fervor of the late 1990s. Back then, internet companies promised revolutionary growth but often lacked the fundamentals to support soaring market caps.
Today’s AI leaders — particularly Nvidia, which has become the de facto engine behind the AI revolution — are generating substantial profits. Still, the pace of price appreciation and the circular nature of AI investments are raising eyebrows.
Nvidia’s chips power the large data centers that train advanced AI models such as OpenAI’s ChatGPT and Google’s Gemini. But as major tech firms simultaneously act as both suppliers and customers in this ecosystem, some analysts warn that inflated inter-company demand may be distorting market expectations.
Government’s Stance Sparks More Volatility
The latest wave of selling intensified after remarks from David Sacks, the White House’s artificial intelligence and crypto policy lead, who dismissed the idea of any government support for AI firms.
“There will be no federal bailout for AI,” Sacks posted on X (formerly Twitter). “The U.S. has at least five major frontier model companies. If one fails, others will take its place.”
He added: “I don’t think anyone was actually asking for a bailout. (That would be ridiculous.) But company executives can clarify their own comments.”
Sacks’s statement came in response to comments made earlier in the week by OpenAI CFO Sarah Friar during The Wall Street Journal’s Tech Live conference. Friar had discussed the challenges of financing expensive AI chips and suggested that the company could benefit from a government “guarantee” to make such financing easier.
Following the backlash, OpenAI CEO Sam Altman clarified that the company was not seeking any form of government guarantee or financial protection. “We are not asking for bailouts,” Altman told reporters, emphasizing that OpenAI remains focused on building sustainable AI infrastructure without relying on public funds.
Nevertheless, the market reaction to the exchange was swift, with investors interpreting the discussion as evidence of potential stress in the AI funding environment.
Nvidia’s Tough Week
Nvidia’s decline on Friday capped what has been one of its most challenging weeks in months. Shares had already slid earlier in the week after Qualcomm (QCOM) reported quarterly results that, while strong, reignited concerns about overvaluation in the semiconductor sector.
At midday Friday, Nvidia’s stock hovered around $115, down nearly 10% from the start of the week, erasing tens of billions in market capitalization. Despite stellar earnings and continued dominance in AI chip production, traders have begun to question whether Nvidia’s valuation — which at one point surpassed $3 trillion — leaves much room for error.
“Nvidia’s fundamentals remain exceptional, but investor sentiment is shifting from euphoria to realism,” said one market strategist. “AI is transformative, but no stock can go up forever.”
Echoes of the Dot-Com Era
The parallels between today’s AI surge and the late-1990s internet boom are becoming increasingly apparent. Then, as now, investors poured into companies seen as leaders of a transformative technological wave. The difference this time is that firms like Nvidia, Microsoft, and Alphabet are highly profitable and have established business models — but even strong fundamentals can struggle to justify parabolic valuations.
Circular investment flows — where AI companies invest in each other’s technology to drive mutual growth — are also amplifying comparisons to the dot-com era. Some analysts caution that such dynamics can create artificial demand cycles that eventually unwind when real-world adoption fails to match expectations.
Broader Tech Weakness
The pressure on Nvidia reverberated across the entire tech sector. Shares of Microsoft (MSFT), Alphabet (GOOG), and Meta (META) all declined between 1% and 3% on Friday, while Tesla (TSLA) also slid as risk appetite waned.
Meanwhile, investors rotated into safer assets, with the Nasdaq Composite falling 1.8% and the S&P 500’s technology sector down more than 2% for the day. Market analysts noted that the pullback appears to be driven more by valuation concerns than by any specific earnings disappointment.
“The AI story isn’t over — far from it,” said a senior portfolio manager at a major U.S. investment firm. “But after such an extraordinary run, markets are now recalibrating expectations to something more sustainable.”
