Nvidia Stock Crashes 17%, Wiping Out $600 Billion in a Single Day

Nvidia's stock price plummeted by 17% on Monday, erasing nearly $600 billion in market value in a single day. The crash, which was the largest one-day drop in the company's history, was triggered by concerns over the emergence of low-cost AI models like DeepSeek, which could potentially undermine Nvidia's dominance in the AI market. The stock's decline also raised questions about the sustainability of the AI investment theme and the market's reliance on megacap stocks for performance.

Nvidia's stock crash highlights the risks associated with relying too heavily on a small number of megacap stocks for market performance. These companies, often referred to as the "Magnificent Seven," account for a significant portion of the weight of the S&P 500 and Nasdaq 100 indices, meaning that their performance has a disproportionate impact on the overall market. When these stocks falter, as they did in the case of Nvidia, the entire market can be dragged down with them.

The Nvidia crash also raises questions about the sustainability of the AI investment theme, which has been a critical driver of stock performance over the past two years. If it becomes clear that AI models can be trained effectively with less high-end computing power than previously assumed, there could be a further correction in the U.S. stock market, as this would potentially undermine the dominant positions of some firms that have powered the rally.

Investors may now be more cautious about investing in broad market funds that follow the S&P 500, as the increasing megacap stock concentration in the benchmarks means that they cannot all be very passively invested as they have been over the last decade. This could lead to a shift in market leadership or a rotation into other corners of the U.S. market that have not fared as well in recent years.

In summary, the Nvidia stock crash serves as a reminder of the risks associated with relying too heavily on a small number of megacap stocks for market performance. It also raises questions about the sustainability of the AI investment theme and may lead to a shift in market leadership or a rotation into other sectors of the U.S. market.