US open: Stocks slump as AI bubble worries grow, ahead of Nvidia earnings

(Sharecast News) - US stocks fell on Tuesday for the fourth straight session amid growing concerns about a potential AI bubble and as investors awaited key earnings from chipmaker Nvidia and the delayed non-farm payrolls report. At 1510 GMT, the Dow was down 1.2%, the S&P 500 was 1% lower and the tech-heavy Nasdaq was 1.5% weaker.

David Morrison, senior market analyst at Trade Nation, said Nvidia's third-quarter earnings after the close on Wednesday could be a pivotal moment for equity markets as we head towards year-end, given its leadership position in the AI trade, as well as current concerns around overvaluations and future returns on investment.

"Investors are worried, as can be seen by the size of the recent selloff," Morrison said. "But for those of a strongly bearish persuasion, it may be worth considering that the recent pullback in Nvidia's stock price does give it some room to the upside, should tomorrow's release beat expectations. Revenues and earnings are important, but it's Nvidia's forward guidance which may prove key to how it performs after tomorrow's results."

Morrison pointed out that investors are also having to price out the prospect of another rate cut from the Federal Reserve next month.

"This follows a series of statements from members of the Federal Reserve, beginning with Chair Jerome Powell after the October meeting, when he warned that another rate cut in December was not a foregone conclusion," he said.

"Since then, other FOMC members have expressed their concerns about above-target inflation, and a lack of clarity over the state of the economy. This is due to the lack of official economic data during the government shutdown. This has led many to favour no change in the Fed Funds rate after next month's meeting, which means the removal of a strong tailwind for equity markets."

On the macroeconomic front, the latest weekly data from payroll processor ADP showed the private sector shed an average of 2,500 jobs per week in the four weeks to 1 November.

Last week, ADP reported that the private sector shed an average of 11,250 jobs per week in the four weeks to 25 October.

In equity markets, Home Depot shares slid nearly 5% as the DIY retailer cut its full-year outlook after weak consumer sentiment and a sluggish housing market weighed heavily on quarterly earnings.

It now expects comparable sales to be "slightly positive" year-on-year. That is down on the 1% growth previously forecast.

Forecasts for adjusted diluted earnings were also downgraded. EPS is now expected to fall by around 5%, a steeper decline than the 2% previously guided.

Elsewhere, business software company Intuit gained as it agreed a multi-year contract worth more than $100m with OpenAI that will allow its customers to use its finance apps directly in ChatGPT.