AI Stocks Decline as Nvidia’s Margin Warning Triggers Sell-Off

Indian AI Stocks Slide Amid Nvidia’s Margin Warning

Indian artificial intelligence (AI)-focused stocks tumbled on February 27, reacting to Nvidia Corp.’s fourth-quarter earnings report. While the AI giant posted an impressive 78% surge in revenue, concerns over tightening gross margins and potential US tariffs weighed on investor sentiment.

Data center-themed stocks such as Anant Raj, E2E Networks, and Black Box saw losses of up to 5%, as Nvidia warned that margins could drop from 73.5% to 71% in the first quarter of FY25 due to the ramp-up of its next-generation Blackwell AI chips.

Market Reactions: Indian and Global AI Stocks Decline

At 2:15 PM on February 27, key AI-focused Indian stocks saw notable declines:

• E2E Networks was down 4.76% at ₹1,895 per share.
• Anant Raj fell 5.5% to ₹481 per share.
• Black Box dropped 5% to ₹392.4 per share.
• Orient Technologies slipped 3% to ₹320 per share.
• Netweb Technologies declined 4.5% to ₹1,489 per share.

The broader AI and data center sector, which had been riding high on growing AI adoption and cloud computing demand, faced renewed selling pressure amid concerns of a potential slowdown in AI chip spending.

Nvidia’s Earnings: Strong Revenue, But Margin Concerns

Despite record revenue growth, Nvidia’s results hinted at profit margin contraction due to:

1. Increased production costs associated with its upcoming Blackwell AI chips.
2. Potential trade restrictions that could increase costs and limit market expansion.
3. Emerging competition from low-cost AI models like those from DeepSeek, which may reduce demand for Nvidia’s high-end AI chips.

The uncertainty surrounding Nvidia’s future profitability outlook led to broader weakness in semiconductor and AI-related stocks worldwide.

Global AI and Semiconductor Stocks Also React

The market reaction extended beyond India, impacting global AI and semiconductor players:

• Taiwan Semiconductor Manufacturing Co. (TSMC), Nvidia’s primary chip supplier, fell 0.47%.
• Samsung Electronics dropped 0.18%, while SK Hynix slid 1%.

The recent record-breaking $500 billion single-day loss in Nvidia’s market cap on Wall Street further fueled caution among investors in AI-related equities.

Microsoft’s Data Center Lease Cuts Add to Concerns

Adding to investor anxiety, an analyst report suggested that Microsoft—one of the biggest investors in AI infrastructure—may be canceling some data center leases. This raised fears of a potential slowdown in AI infrastructure spending, impacting data center operators and AI hardware manufacturers alike.

AI Stocks’ Recent Rally Faces a Reality Check

AI-related stocks had been among the best-performing in recent months, driven by high expectations of growing AI adoption and the rising demand for data centers and power infrastructure. However, with margin pressures at Nvidia, new competitors emerging, and questions over sustained AI investment, the sector is now experiencing a short-term correction.

Short-Term Volatility, Long-Term AI Growth Story Intact

While the near-term market reaction has been negative, the long-term AI growth trajectory remains strong. Investors are likely to monitor Nvidia’s upcoming product launches, data center investment trends, and potential trade policy shifts before making fresh bets on AI-focused stocks.

For now, AI investors are treading cautiously, awaiting further clarity on whether AI infrastructure spending will sustain its rapid pace or if a cooling-off period is on the horizon.