Nvidia (NVDA) shares dropped more than 4% on Thursday, extending a recent slide as chip stocks came under renewed pressure. The decline was part of a broader technology selloff, with the Nasdaq Composite down 2.5%, the S&P 500 falling 1.4%, and the Dow Jones Industrial Average losing about 0.2% by early afternoon trading.
The Philadelphia Semiconductor Index tumbled over 6%, reflecting growing unease about the costs, capacity constraints, and potential returns tied to artificial intelligence investments. Investors are increasingly questioning whether the massive capital expenditures required to build AI infrastructure can be sustained without straining balance sheets or creating systemic risks.
Adding to the market's jitters, oil prices surged on fresh geopolitical tensions. Brent crude climbed nearly 3% to above $112 a barrel, while West Texas Intermediate advanced around 2% to more than $99. Houthi attacks in Saudi Arabia and uncertainty over possible renewed US and Israeli strikes against Iran heightened concerns about energy supplies and inflation, further pressuring equities.
Jensen Huang points to capital shortage
Despite the recent weakness, Nvidia CEO Jensen Huang struck an optimistic tone on demand for neocloud providers, which supply cloud infrastructure to AI companies. He argued that the industry's challenge is increasingly about securing the financing needed to expand capacity rather than finding customers.
“If you look at the fundamentals, the demand for the neoclouds is off the charts,” Huang told CNBC, referring to companies such as Coreweave and Nscale. “What is missing in the middle is the working capital to fuel that growth… because there’s just so much demand across so many sectors of AI, there’s a scarcity of capital.” He added, “The demand for capital is much greater than the availability of capital. That’s going to get solved.”
Huang's comments come as investors scrutinize the substantial funding required to expand AI computing infrastructure. While demand for chips and cloud capacity remains strong, markets are increasingly focused on whether companies can finance their expansion without taking on excessive risks or relying on circular investment arrangements.
Circular financing concerns add pressure
Questions about interconnected investments across the AI supply chain have added to the nervousness. According to Korean media, Nvidia and Tesla are investing a combined 3.7 trillion won (approximately $2.8 billion) in Samsung Electro-Mechanics to establish dedicated production facilities for advanced flip-chip ball grid array (FC-BGA) semiconductor substrates used in AI chips and data-center networks.
The arrangements have revived concerns about circular financing, in which companies provide funding to customers or partners that subsequently spend the money on their products. Investors fear such practices could inflate apparent demand, encourage excess manufacturing capacity, and weaken the underlying economics of the AI investment cycle.
Supply constraints highlight the industry's challenge
Lam Research's latest results offered evidence of continued demand but also highlighted limits on how quickly the supply chain can respond. The semiconductor equipment maker reported record quarterly revenue of $8.22 billion and adjusted earnings of $2.20 per share, beating expectations. However, CFO Doug Bettinger said its quarterly revenue guidance figure of $8.6 billion "would have been a bit higher if not for some near-term supply chain constraints."
The combination of strong demand, financing hurdles, and supply bottlenecks underscores the delicate balance the AI industry faces. While the long-term growth story remains intact, near-term volatility is likely as investors weigh the sustainability of the current investment cycle.
This article is for informational purposes only and does not constitute financial advice.
