Nvidia stock slipped 1% in premarket trading on Tuesday as chip stocks extended a selloff into a second day, with Intel and Advanced Micro Devices down over 3%. The decline followed multiple catalysts including renewed scrutiny of Nvidia's AI investment practices and reports that Nvidia was in talks to provide a roughly $250 billion backstop for OpenAI as part of a data-center project. On Monday, Nvidia lost approximately $250 billion in market capitalization, contributing to a 2.4% drop in the iShares Semiconductor ETF.
Multiple Catalysts Drive Chip Stock Decline
Several factors converged to pressure chip stocks. Nvidia faced renewed scrutiny over its AI investment strategy, with critics arguing that its practice of investing heavily in AI companies that subsequently purchase Nvidia chips creates circular dependencies adding risk to the AI ecosystem. Reports on the weekend indicated Nvidia was in talks to provide a roughly $250 billion backstop for OpenAI as part of a massive data-center project.
Meanwhile, Chinese AI models such as Moonshot AI's Kimi K3 and those from DeepSeek are reported to be nearly on par with frontier U.S. models at a fraction of their cost. ChangXin Memory Technologies debuted on the Shanghai Stock Exchange, with China's largest memory chip maker surging nearly 470% on its first day, making it the most valuable listed company in mainland China.
Morningstar Analysts Call OpenAI Deal Concerns Overblown
On Monday, Morningstar analysts stated that concerns around the speculated OpenAI deal were overblown. "We continue to believe that investors should properly be aware of such deals, but we don't view the report as a sign that AI demand is a mirage. AI token usage continues to rise exponentially, while AI hosting companies appear to be computing constrained," they said in a report.
The analysts noted that given the high likelihood of strong AI capital expenditures in the near term and medium term, Nvidia's growth prospects are underrated. "Our understanding is that Nvidia is providing backstops to some neoclouds, enabling them to receive better financing terms for buildouts in exchange for sharing some of their AI hosting revenue with Nvidia... A similar OpenAI deal would be much larger and more prominent, but in our view, is squarely in line with Nvidia's broader strategy of seeding and developing the AI ecosystem for all players," according to Morningstar.
Retail Sentiment Mixed Across Chip Stocks
On Stocktwits, retail sentiment was 'neutral' for Nvidia, 'bullish' for AMD, and 'extremely bullish' for Intel. One trader wrote: "$AMD $NVDA $INTC $MU Well the whole TAM bs doesnt even matter, the reality is these companies are building these data centres, and computers are all that will matter in the end."
Another stated: "$NVDA $QQQ speculative news of potential funding OpenAI datacenter by Wallstreet news caused damage, unbelievable."
FAQ
What caused Nvidia stocks to decline on Tuesday?
Nvidia stock slipped 1% in premarket trading on Tuesday as chip stocks extended a selloff driven by multiple factors: renewed scrutiny of Nvidia's AI investment practices, reports of talks to provide a $250 billion backstop for OpenAI, competitive Chinese AI models, and a 470% surge in ChangXin Memory Technologies' Shanghai debut.
What did Morningstar analysts say about the OpenAI deal?
Morningstar analysts stated on Monday that concerns around the speculated OpenAI deal were overblown, noting that AI token usage continues to rise exponentially and that the deal aligns with Nvidia's broader strategy of developing the AI ecosystem by providing backstops to enable better financing terms in exchange for revenue sharing.
