Key Points
- NVIDIA and Meta decline amidst new uncertainties in AI
- Microsoft and other tech giants withstand the pressure
- AMD and Broadcom rise; Semiconductor investors reallocate their positions
On November 12th, there was a clear divergence in the performance of large tech stocks. NVIDIA (NASDAQ : NVDA) and Meta Platforms (NASDAQ : META) declined after Jason Huang (Jensen Huang) resigned, while Microsoft (NASDAQ : MSFT), Alphabet, and other tech giants saw increases.
NVIDIA's stock price fell by about 7% during early trading on Thursday, while Meta fell by about 1.1%. At the same time, Microsoft, along with Apple, Amazon, Alphabet, and Tesla, saw increases in their stock prices. The market reaction was not one of a widespread sell-off by the "big seven" companies; instead, there was an uneven divergence in trends.
This division occurred after NVIDIA confirmed that Jensen Huang had resigned from his position as CEO, and Colette Kress ( Colette Kress ), the long-term Chief Financial Officer, was appointed as the interim CEO. This management change has added new uncertainties to the AI segment, which is already under pressure due to concerns about high valuations and infrastructure expenditures.
Why are NVIDIA and Meta declining today?
NVIDIA led the decline, as reports regarding Jensen Huang's personal affairs escalated to an independent board of directors investigation, followed by his resignation.
The company previously stated that there was no reason to believe that confidential information or national security had been compromised. The core allegations involved in the investigation are independent of any confirmed findings of misconduct.
This management transition occurred after a previous round of board of directors investigations by NVIDIA, which had already caused significant fluctuations in the stock price of this chip manufacturer.
The decline of Meta reflects the additional pressure brought about by its aggressive AI infrastructure investments.
S& P Global recently downgraded its outlook for Meta to negative, warning that these expenditures could result in a $71 billion cash flow gap by 2027.
Although the advertising business of Meta continues to generate considerable revenue, investors are still concerned about how long it will take for its AI project to start generating financial returns.
Microsoft, AMD, and Broadcom perform strongly against the trend
Microsoft is relatively stable, indicating that investors are distinguishing between cloud platform companies and suppliers that face specific company risks.
This software giant has diversified sources of revenue in Microsoft 365, Azure, and enterprise services, therefore it is less directly affected by changes in NVIDIA's management team.
However, Microsoft is still exposed to a broader AI investment cycle. Previous analyses have found that while Microsoft and Meta continue to make substantial investments in infrastructure, they have reduced some of their expenditures on AI software.
There has also been a clear differentiation among semiconductor stocks.
As investors assess whether the uncertainty in NVIDIA's management will benefit competitors, AMD and Broadcom are rising.
This differentiation is similar to the situation previously seen in the stock prices of NVIDIA and Microsoft; at that time, despite the weakening of NVDA, cloud service providers continued to see increases in their stock prices.
However, short-term stock price fluctuations do not prove that AMD or Broadcom has gained market share.
What will happen to large tech stocks next?
The broader technology sector remains highly sensitive to rising financing costs and concerns regarding the profitability of AI.
Investors are paying increasing attention to whether data center expansion, AI software subscriptions, and corporate adoption will be able to generate sufficient returns for the billions of dollars invested in infrastructure.
Rising yields on U.S. Treasury bonds may also suppress valuations of tech stocks, as this will reduce the present value of future expected earnings; this relationship has already been discussed in our analysis of tech stock valuations.
