Nvidia's decline causes chip stocks to slide.

• On Tuesday, the market experienced a downturn, with semiconductor stocks, particularly Nvidia, declining.
• The optimism that the AI boom will necessitate increased purchases of semiconductors and memory has led to a rise in chip stocks in the past year.
• Nvidia has been the leader in the sector, with a nearly 129% increase in value so far in 2024.

On Tuesday, the market experienced a downturn, with semiconductor stocks, including , leading the decline. The S&P 500 dropped more than 1%.

Nvidia's stock price fell nearly 8%, while the SMH index tracking semiconductor stocks slid more than 6%.

The ISM manufacturing index reported August figures below consensus expectations on Tuesday, causing markets to be sluggish and raising fears about the economy's strength. However, this also increases the possibility that the Federal Reserve will cut interest rates.

The optimism that the artificial intelligence boom will necessitate increased purchases of semiconductors and memory by companies has led to a rise in chip stocks in the past year.

Nvidia has been the leader in the sector, with a nearly 129% increase in stock value so far in 2024, and it remains the dominant player in the market for AI data center chips.

Nvidia's AI chips are highly sought after by investors, while Intel and AMD's AI offerings have less demand. Broadcom focuses on TPU chips, and Qualcomm promotes its chips as the top choice for AI on Android phones.

Nvidia reported $30 billion in quarterly earnings for the quarter ending in July, exceeding Wall Street's expectations. The company's data center business, which includes AI processors, experienced a 154% increase in revenue on an annual basis, driven by the purchases of billions of dollars of Nvidia chips by cloud and internet giants.

Nvidia said it expects 80% sales growth in the current quarter.

Last week, some investors perceived Nvidia's growth forecast as a slowdown, which negatively affected chipmakers that supply Nvidia with memory and other components.

On Tuesday, Intel unveiled new laptop processors capable of running AI programs locally, without relying on cloud servers. Meanwhile, Broadcom, a company that collaborates with major corporations to create custom AI chips, will report its third-quarter earnings on Thursday.