Pressure on Nvidia could trigger a domino effect across artificial intelligence stocks as investors confront fragile confidence and closer political scrutiny, IG said in an interview published Nov. 9.
The selling remained concentrated in technology shares, but the market could slip into a more sustained decline. The Dow, Britain's FTSE 100 and Germany's DAX had held up better.
The comments came in Reuters' Market Talk, which reported allegations that Nvidia Chief Executive Jensen Huang had a relationship with a Chinese spy and was under investigation. The interview did not establish the allegations or identify an investigating authority.
IG initially said the retreat reflected investors shifting money between parts of the market. Technology shares were paying for large gains in April, May and June, while the selling had yet to spread broadly.
The Nvidia allegations added another source of uncertainty because of the company's importance to artificial intelligence investment and Huang's importance to Nvidia. Confidence in technology companies, artificial intelligence and earnings was already fragile.
IG said the situation risked a “domino effect” if investigations uncovered further problems. Congressional interest was likely because of the national security implications, although the interview offered no confirmation of a congressional investigation.
The remarks stopped short of predicting an end to Nvidia's dominance or the wider artificial intelligence investment boom. The timing nevertheless added to difficulties ahead of earnings from CoreWeave and Nebius, whose debt levels and ability to sustain their businesses were already drawing attention.
Earnings expectations needed reassessing following the Democrats' takeover of Congress. The outlook now depended partly on scrutiny of data centre construction and whether more states opposed projects, rather than financial results alone.
Virginia illustrated why Democratic control did not necessarily mean an end to construction. The state remained receptive to data centres despite its Democratic leanings. Approval across the country, however, could no longer be taken for granted.
IG said the decline in CoreWeave and Nebius share prices was 40%, without specifying a period or distinguishing between the two companies. Even after that fall, their prices might not reflect all the adverse developments.
On inflation, a softer October reading and the previous week's oil price decline could ease pressure on the Federal Reserve. IG said it expected those developments to give policymakers favouring lower interest rates more room, while making clear that the outlook depended on Iran and apparent peace talks.
The closing assessment put Washington at the centre of the risks facing investors over the next few weeks. Legislative uncertainty could persist for months because the new Congress would not take office until January. Developments involving Iran added another unresolved risk, leaving the durability of the market's recovery uncertain.
