Nvidia, once the world's most valuable company for a brief moment last week, experienced a sharp decline in its stock, falling as much as 5% on Monday. This drop extended its recent slide into correction territory, marking the third consecutive day of losses for the semiconductor giant. The company's stock has now declined over 11% from its all-time high of $135.58, reached just last Tuesday.
The Santa Clara-based company's market capitalization fell to approximately $2.9 trillion, trailing behind Microsoft and Apple, both valued at over $3 trillion each. This sharp correction has wiped out around $500 billion in market value, a significant drop from its peak just a few days ago.
Nvidia's recent performance has been instrumental in driving the S&P 500 and Nasdaq to record highs this year. However, the recent downturn has raised concerns about the sustainability of its stock price surge. Analysts are mixed on the implications of this selloff. Bank of America analysts reiterated a Buy rating, emphasizing that the recent volatility is likely short-lived. They set a price target of $150, indicating their continued confidence in Nvidia as a "top pick."
Jefferies analysts echoed this sentiment, maintaining a Buy rating and raising their price target from $135 to $150. They referred to Nvidia as the "king and kingmaker" in the tech sector. Despite these optimistic views, some market experts, including Patrick Moorhead, founder and CEO of Moor Insights & Strategy, advise caution. Moorhead noted that investors should be vigilant for signs that the pullback could persist, especially focusing on the profitability of companies within Nvidia's ecosystem.
Adding to the stock's woes, Nvidia's CEO and co-founder, Jensen Huang, sold nearly $95 million worth of shares around the time the company reached its peak valuation. These sales were part of a pre-scheduled plan, according to regulatory filings. While Nvidia declined to comment on these transactions, the timing has added to investor concerns.
Comparisons have been drawn to the early 2000s dot-com bubble, specifically referencing Cisco, which similarly soared to become the world's most valuable company before suffering an 80% loss in value as the bubble burst. Barry Bannister, chief equity strategist at Stifel, warned that a significant correction in Nvidia's stock could impede the S&P 500's ability to continue rising.
The broader semiconductor sector has also felt the impact of Nvidia's decline. The PHLX Semiconductor Index dropped 6% since Thursday. Despite this, the overall stock market remained resilient. The S&P 500 gained 0.3%, and the small-cap Russell 2000 index, which has lagged behind large-cap indices recently, rose by 0.8%.
Manish Kabra, head of US equity strategy at Société Générale, described Nvidia's selloff as a "super-healthy development for the market." He suggested that this correction could either lead to a broader market rally or prevent the formation of a bubble in tech stocks that some fear might be developing.
