Nvidia NVDA shares fell more than 4% on Thursday as chip stocks came under renewed pressure, with investors growing increasingly concerned about the financing required to sustain the artificial intelligence boom.
The selloff extended across the technology sector, with the Nasdaq Composite down 2.5%, the S&P 500 falling 1.4% and the Dow Jones Industrial Average losing around 0.2% at around 1:10 PM EST.
The Philadelphia Semiconductor Index tumbled over 6%, reflecting mounting unease over the costs, capacity constraints and potential returns associated with AI investments.
The weakness came as a sharp rise in oil prices added another source of uncertainty. Brent crude climbed nearly 3% to above $112 a barrel, while West Texas Intermediate advanced around 2% to more than $99.
Fresh Houthi attacks in Saudi Arabia and uncertainty surrounding the possibility of renewed US and Israeli strikes against Iran heightened concerns about energy supplies and inflation, further putting equity markets under pressure.
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,” Nvidia CEO Jensen Huang told CNBC, referring to companies such as Coreweave and Nscale, which offer cloud-based storage to AI companies.
“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.”
“The demand for capital is much greater than the availability of capital. That’s going to get solved.”
Jensen Huang
Huang’s comments come as investors scrutinise 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, or 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.”
For Nvidia, the broader market reaction underlines the tension facing the AI industry: demand for computing capacity remains substantial, but financing costs, supply bottlenecks and questions about investment returns are becoming harder for investors to ignore.
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