(NewsNation) — Global shares have declined moderately this week amid growing concerns about a possible AI bubble ahead of chipmaker Nvidia’s earnings report.
Nvidia is viewed as a bellwether of the recent boom in artificial intelligence, and earnings for the last quarter, expected on Wednesday, could set the tone for global markets. Fervent demand for the company’s AI chips has helped it surpass a $5 trillion valuation, making it the most influential stock on Wall Street, steering the direction of the S&P 500.
Adding to the unease, two members of the “Magnificent Seven,” Microsoft and Amazon, were downgraded from “buy” to “neutral” by Rothschild & Co. and Redburn.
The Magnificent Seven account for nearly 40% of the S&P 500, according to Morningstar, and their recent pullback follows a monthslong rally that began in April.
How could this slump impact markets?
Some analysts view the recent retreat as a healthy correction after record highs, while others fear it could be an early sign of broader economic strain.
On Tuesday, the Dow Jones Industrial Average fell nearly 500 points, while the S&P 500 logged its longest losing streak since August. Both indexes have closed lower for four consecutive sessions.
The tech-heavy Nasdaq Composite has also slid, recording its fifth negative day in six sessions.
Whether the streak continues or reverses may depend heavily on Nvidia’s report.
Economic uncertainty causes market turmoil
Wednesday’s earnings could trigger a market swing of about $320 billion in either direction, analysts warned, depending on the chipmaker’s forecast for AI.
Concerns that the AI boom may be reaching bubble territory are contributing to the broader tech pullback, heightened by economic uncertainty and the growing affordability crisis.
Traders had expected the Federal Reserve would cut its main interest rate at its next meeting in December, but now some aren’t as sure.
“The Fed’s inaction or slow reaction time to that uncertainty is showing its sort of ugly face right now,” said Mitch Roschelle, CEO of M2 Communities. “Deferring their decision to cut interest rates when they’ve telegraphed their intention to cut interest rates could be devastating on the market. And by the way, the market sell-off right now is the market’s way of telling the Fed, ‘Don’t you do it.'”
The Fed has cut rates twice already this year in hopes of shoring up a slowing job market. But lower interest rates can make inflation worse, and inflation has stubbornly remained above the Fed’s 2% target.
With federal economic data delayed by the government shutdown, investors are relying heavily on private-sector data, adding to the pessimism already priced into markets.
The Associated Press contributed to this report.