Nvidia has shed roughly $1 trillion in market capitalisation in less than two months, erasing the valuation premium built up during the artificial intelligence frenzy. The stock now trades at 18 times forward earnings, its cheapest level since early 2019 and below the multiples of both the S&P 500 and the Nasdaq 100. The decline, which accelerated from a mid-May peak, has pushed Nvidia’s market value from around $4.2 trillion to near $3.2 trillion, returning its valuation to levels last seen before generative AI captured global attention.

The sell-off reflects a broader rotation under way in US equity markets. After years in which the so-called Magnificent Seven accounted for the bulk of Wall Street’s gains, investors are now favouring the S&P 493—the rest of the benchmark index. Apollo Global Management notes that the S&P 493 is significantly outperforming the mega-cap cohort this year, a shift not observed for several years. The trigger is not a deterioration in Nvidia’s business but a recalibration of expectations. Heavy capital expenditure on AI infrastructure by hyperscalers such as Microsoft, Amazon and Alphabet is compressing free cash flow, even as revenues grow. Meanwhile, the earnings growth gap between the tech giants and the rest of the market is narrowing, reducing the premium investors are willing to pay.

The rotation has lifted shares of memory-chip maker Micron Technology, which has surged more than 200% this year, along with rivals AMD and Intel. Nvidia, by contrast, is among the worst performers in the Philadelphia semiconductor index. Despite this, the company still commands an estimated 97% of the server processor market, and Wall Street analysts have been raising profit forecasts. “The stock follows the earnings,” said Randy Hare, a portfolio manager at Huntington Bank, who expects Nvidia to resume its climb. Yet the market’s message is clear: after a rally of more than 1,100% from late 2022 through 2025, Nvidia must now deliver results that match the elevated expectations, rather than simply promise them.

The next test arrives with Nvidia’s fiscal second-quarter results, expected in August, which will show whether its earnings trajectory can support the reset valuation. For the broader market, the rotation signals not the end of the AI investment cycle but a broadening of opportunity beyond the handful of names that dominated the first phase. As one New York-based fund manager put it, “companies with very low expectations, like Micron, are now capturing all the attention.”