Nvidia Stock Plunges 6% as Meta and Alphabet Announce Groundbreaking Partnership

Nvidia shares dropped more than 6% Tuesday after reports that Meta Platforms is considering spending billions on AI chips from Google's parent company Alphabet instead. The news sent Alphabet shares up over 1% and Meta up 2.35% to $626.81, highlighting how quickly fortunes can shift in the competitive AI chip market.

The Nvidia selloff came from a report in The Information, citing sources familiar with the matter. This potential deal would mark a significant shift for Meta, which has been one of Nvidia's biggest customers for AI processing chips. Meta's possible pivot to Alphabet's chips shows how tech giants are looking for alternatives to reduce their dependence on Nvidia's dominant position in AI hardware.

US markets struggled to find direction Tuesday, with mixed results across major indexes. The Dow Jones gained 0.15%, while the S&P 500 fell 0.24% and the tech-heavy Nasdaq dropped 0.63%. This came after a strong Monday session where the S&P 500 jumped 1.6% and the Nasdaq surged 2.7% - its best daily performance since May 12.

The market volatility reflects growing optimism that the Federal Reserve will cut interest rates next month. Recent economic data has shown signs of cooling consumer spending and easing price pressures, which typically supports the case for lower rates. Tech stocks have been particularly sensitive to interest rate expectations, as lower rates make growth companies more attractive to investors.

For investors, the Nvidia news highlights a key risk in the AI boom. While Nvidia has dominated the AI chip market, major tech companies are actively developing their own alternatives. Google has its Tensor Processing Units, Amazon has its custom chips, and even Meta is working on its own AI hardware. This competition could pressure Nvidia's pricing power and market share over time.

The shortened trading week due to holidays means volume may be lighter than usual, potentially amplifying price swings. Monday's tech rally helped the sector recover from a difficult month, but Tuesday's mixed performance shows investors remain cautious about valuations in AI-related stocks.