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More Pain for Facebook and Nvidia

The two tech groups lost tens of billions of dollars in a week and it may not be over.
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Facebook  (META) - Get Free Report and Nvidia  (NVDA) - Get Free Report, two of the flagships of tech, seem to be going through a real ordeal. 

Both companies lost tens of billions of dollars in market cap during the trading week ending Sept. 16. 

The repercussions are enormous for these two companies which have just been ejected from the Top 10 most valued companies in the world.

The network giant Facebook, which is now called Meta Platforms, is only a shadow of what it was a year ago. Indeed, on Sept. 7, 2021, Facebook joined the prestigious club of companies worth at least $1 trillion with a market cap of $1.078 trillion set that day.

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Out of the Top 10

The $1 trillion dollar club has only five members: Apple  (AAPL) - Get Free Report, the Saudi oil giant Saudi Aramco, Microsoft  (MSFT) - Get Free Report, Alphabet  (GOOGL) - Get Free Report and Amazon  (AMZN) - Get Free Report, according to companiesmarketcap.com. The electric vehicle manufacturer Tesla  (TSLA) - Get Free Report, which was briefly part of this club, is knocking on the door again with a market capitalization of $944 billion as of Sept. 16.

A year later, Facebook's market capitalization has been reduced by nearly two-thirds. The company weighs only $393.2 billion, down 63.5%. This level of market cap is the lowest level ever reached by Mark Zuckerberg's empire since Jan. 7, 2019. At the time, Facebook was mired in the Cambridge Analytica scandal. The social network allowed the consulting firm, which partnered with the Donald Trump campaign team ahead of the 2016 presidential election, to harvest private data from tens of millions of its users that allowed it to profile voters.

On Sept. 16, Facebook shares ended the trading week with a total drop of 13.5% to $146.29, close to their lowest price of $146.01 on March 16, 2020, when restrictions imposed in the early days of the covid-19 pandemic caused panic among investors.

Last week, Facebook lost some $62 billion in market value, pushing it out of the Top 10 in terms of market capitalization. The group is now the world's 12th most valuable company.

In July, Facebook announced its first quarterly revenue decline since going public in 2012.

Many Issues

It is true that the economic slowdown and a probable recession threaten the revenues generated by advertising, which is the bread and butter of Facebook. But the owner of Instagram and WhatsApp also sees the competition stealing market share from the company. 

TikTok, the short video platform, has become one of the favorite avenues for advertisers targeting Gen Z and millennials in recent months. In addition, the change in policy on the protection of privacy by Apple now prevents Facebook from tracking the online habits of its users and then displaying ads corresponding to their history of online interactions.

Last year, Apple gave the users more control on their privacy settings when they downloaded apps. The new feature is called App Tracking Transparency (ATT) and all third party apps need to receive permission from users before the companies can track their movements online for ad targeting.

The year 2022 looks like a path of suffering for Nvidia as well. 

There are big numbers to worry about: Nvidia shares fell 8.3% to $131.98 in the trading week ending Sept. 16. The company thus lost an additional $30 billion in market value that week. 

Since an all-time high of $823.31 billion in market value reached on Nov. 15, 2021, Nvidia has seen this market cap -- currently at $328.9 billion -- melt by more than 60% in 10 months. Basically, nearly $500 billion in market capitalization has melted away in less than a year.

Bulky Inventories

Nvidia is now only the world's 19th most valuable company and could be out of the Top 20 if its decline continues.

As with Facebook, the current economic climate is not good for Nvidia's sales, which finds itself with large inventories. The company itself admitted that it has too many graphics-processing units, RTX 3000 graphics cards, left in stock. The surplus stems from the drop in demand from consumers, especially gamers, in the past few months.

It will therefore drastically lower its prices to get rid of these bulky inventories before it launches the next generation.

"We implemented programs with our gaming-channel partners to adjust pricing in the channel and to price-position current high-end desktop GPUs as we prepare for a new architecture launch," Chief Financial Officer Colette Kress told analysts on Aug. 24. "As noted last quarter, we had expected cryptocurrency money to make a diminishing contribution to gaming demand."

Nvidia is also affected by an expected drop in demand for its graphic cards in the crypto industry, after Ethereum, one of the most active crypto platforms, has just abandoned the transaction validation mechanism which required significant use of computing power.