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AI boom gets fresh gut check as Nvidia shares drop most since January

TOKYO - Investors riding the rapid ascent of the artificial intelligence (AI) theme are experiencing a hiccup as shares of Nvidia Corp and other major players slip after a powerful rally.

Nvidia fell 5.7 per cent on Wednesday, the most since Jan 30, after the chipmaker briefly reached a US$1 trillion (S$1.35 trillion) market cap earlier this week. The stock’s 250 per cent-plus gain from an October low likely provided an attractive opportunity to pocket some gains, with board member Tench Coxe among people who recently took some money off the table. AI software firm fell 9 per cent on disappointing sales forecast, paring its gain for the year to just under 260 per cent.

Wall Street has been obsessed with everything AI this year, with Nvidia’s blowout revenue forecast adding fuel to the frenzied rally. But lofty valuations - Cathie Wood says it’s priced ahead of the curve - are a reason for caution in the still nascent industry.

Cracks appeared in Asia as well, with Taiwan Semiconductor Manufacturing Co (TSMC) on track for a third-straight day of losses while Tokyo-listed Advantest and South Korea’s SK Hynix were down for a second day. Shares of the three Nvidia suppliers have climbed this year amid the AI buying frenzy.

Even after its latest dip, Nvidia is trading at 23 times estimated sales for the current year. That compares with less than 15 times for both Lattice Semiconductor Corp, which has the second-highest valuation on the Philadelphia Semiconductor Index, and, the small cap whose ticker is “AI”.

The AI faithful are unlikely to be shaken by a few down days, however. Nvidia co-founder and chief executive officer Jensen Huang, whose personal fortune has grown by US$20 billion this year according to data compiled by Bloomberg, says companies that refuse to take full advantage of the opportunities provided by AI “will perish”.

“At the current moment, the AI boom is shifting the financial fortunes of one company: Nvidia,” Vital Knowledge’s Adam Crisafulli wrote in a note to clients. “Every company on the planet is talking about how they’re AI plays, but only NVDA is seeing a stairstep shift in its income statement because of the technology.” BLOOMBERG