The Nasdaq Has Fallen in 48% of Septembers Since 1971. Here's What That Means for Nvidia and Micron.

The September Effect is a persistent calendar anomaly in the capital markets, as stocks tend to deliver weaker returns in September than in any other month. This matters because it is not merely a statistical oddity. Institutional investors, mutual funds, and individual traders treat September as a period of heightened risk, a perception that becomes self-reinforcing.

After the quiet summer trading in July and August, portfolio managers return from vacation, reassess positions, and often trim winners or dump laggards ahead of the fourth quarter. Some funds operate on fiscal years that end in September or October, creating a short window for tax-loss harvesting.

The combination of lower liquidity, renewed scrutiny of valuations, and a psychological shift from summer complacency to autumn caution historically produces an average decline in the Nasdaq (NASDAQINDEX: ^IXIC), even though September often finishes higher.

Let's explore how the Nasdaq has held up in September and assess what it could mean for two darlings fueling the artificial intelligence (AI) revolution: Nvidia (NASDAQ: NVDA) and Micron Technology (NASDAQ: MU).

Image source: The Motley Fool.

How does the Nasdaq hold up during September?

Since its creation in 1971, the Nasdaq has averaged a return of -1% in September. This figure stands out because it is the only month with a negative long-term average in the index. Interestingly, September is not a consistent loser based on frequency, though. The Nasdaq has finished September higher roughly 52% of the time.

The apparent contradiction is clearer in the magnitude of the Nasdaq's September declines. When the index rises in September, the gains tend to be modest. But when it falls, the declines are often sharper and more concentrated -- dragging the overall long-term average down.

The result is a month that feels more risky than the actual percentage drop suggests. In turn, volatility clusters, liquidity thins, and ironically, the same names that fueled prior rallies often become the easiest sources of cash when portfolio managers decide to reduce exposure.

How seasonal weakness could impact AI stocks

Portfolio managers who have enjoyed outsize gains through the summer may use September's historically weak backdrop as an opportunity to lock in profits. Because mega-cap AI stocks are so liquid, they become convenient vehicles for selling. A modest rotation away from names like Nvidia and Micron can reduce the Nasdaq's upward momentum, which in turn can snowball into even more selling from retail investors.

Smart investors see how the same characteristics that generated sharp advances in the first place can also produce faster, harsher drawdowns at the flip of a switch. In a month already prone to larger-than-average losses, concentrated exposure amplifies the September Effect rather than cushioning it. The risk is not that Nvidia and Micron suddenly lose their long-term thesis. Rather, it is that short-term positioning and seasonal caution can override sound fundamentals during this period.

Nvidia and Micron bookend the month of September

In my eyes, Nvidia is the clearest proxy for the AI infrastructure supercycle. The company's data center GPUs power the training and inference clusters that hyperscalers like Alphabet, Amazon, and Microsoft, as well as a rising number of private enterprises and sovereign governments, are racing to build.

Nvidia reported its fiscal second-quarter earnings results in late August -- delivering another record quarter of explosive revenue and profit growth and raising the bar for the rest of the year and next year, too.

Nvidia's earnings arrived just days before September began, leaving investors to digest both the reported numbers and the seasonal calendar simultaneously. While a strong earnings report can support a stock price, it can also invite profit-taking in this particular instance, given the timing.

Micron sits in a different but equally critical position. Over the last year, high bandwidth memory (HBM) has emerged as a binding constraint on AI system deployments. Micron is one of only three companies with the scale and process expertise to supply the memory bottleneck. The company is scheduled to report fiscal fourth-quarter earnings on Sept. 30.

This timing places Micron's quarterly update after several weeks of potential seasonal selling pressure and after Nvidia's own earnings report has already set the new tone for the AI complex. If portfolio managers have started trimming AI-related holdings, Micron's results will be set against a more skeptical backdrop. Conversely, any confirmation of tight memory supply and rising pricing power could stabilize the AI trade just as September closes.

The prudent takeaway is not to sell blindly simply because the calendar changed. A smart approach is to size your positions so that a sharper, faster drawdown in high-beta stocks remains tolerable. Moreover, investors must be able to distinguish between post-earnings digestion and portfolio rebalancing, and a genuine change in the AI infrastructure or memory thesis. Remember, seasonality is just context, not a guaranteed signal to abandon a multi-year build-out story.

Adam Spatacco has positions in Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Micron Technology, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.