Nvidia and Other AI Stocks Are Falling. Why Investors Are Souring on Artificial Intelligence.

Nvidia, AMD, CoreWeave, Vertiv, and other stocks were all falling sharply Friday. (Dreamstime)

Wall Street appears to be cycling out of the artificial intelligence trade as August comes to an end.

Virtually every major company connected to the AI boom fell sharply Friday. The losses extended from chip makers such as Nvidia and Advanced Micro Devices to CoreWeave , which provides infrastructure for data centers, and Vertiv Holdings , a manufacturer of power and cooling equipment for the computers at their core.

State Street’s Technology Select Sector SPDR exchange-traded fund, which tracks semiconductor companies, software makers, and other tech stocks, was down 1.7%.

Reasons for the selloff are varied, said Mizuho Securities’ Dan O’Regan in a note Friday. He pointed to a post-earnings malaise for Nvidia, which reported its results Wednesday, saying a few negative headlines about AI may also have caught traders attention.

Nvidia was down 3.1% in the second full session after the report. While the company posted solid results and issued a better-than-expected outlook for the current quarter, that wasn’t enough for investors. O’Regan suggested that some traders may be taking profits because the results included no news that could bring gains, and because the shares had a strong run heading into the earnings print.

“With earnings now behind us, investors are asking: what’s next?” he wrote.

Developments in China were also making waves. Alibaba Group, the country’s largest cloud-computing company, has developed an AI chip that may be an alternative to Nvidia’s H20 units, The Wall Street Journal reported Friday.

“While the chip’s performance and adoption remain to be seen, it’s another sign of China’s accelerating efforts to build a homegrown AI ecosystem,” O’Regan said.

The U.S. Department of Commerce also revoked a program that allowed Samsung Electronics, SK Hynix, and Intel’s China subsidiary to export U.S. chip-making equipment. The move, which gives the trio of companies 120 days to apply for new licenses, may put further strain on America’s tech relationship with China, O’Regan wrote.

It is possible that Friday would have been a tough session for AI stocks regardless of the news. Many traders on Wall Street may have jetted off to the Hamptons or Nantucket for the Labor Day weekend.

“Liquidity is very tough,” O’Regan pointed out. “Selling ANYTHING becomes exponentially harder and can drive prices lower.”

With active managers out on vacation, O’Regan said he has heard some chatter that algorithmic traders may be rebalancing their holdings to end the month.

“Based on the lack of real institutional volume from active managers we are seeing, that probably has some validity to it,” he added.

Write to Nate Wolf at nate.wolf@barrons.com