Nvidia's meteoric rise and subsequent fall have culminated in a historic loss of over $500 billion in market value, the largest three-day drop for any company in history. This dramatic decline follows Nvidia's brief stint at the pinnacle of the stock market, surpassing both Microsoft and Apple in value. However, the company's market cap has plummeted by $430 billion over the past three days. If measured from its intraday peak last Thursday, the loss exceeds half a trillion dollars, nearly equivalent to Tesla's entire market value.
Barry Bannister, chief equity strategist at Stifel Financial Corp., emphasized the broader market implications of Nvidia's correction. "If Nvidia corrects pretty hard in the coming months it becomes very difficult for the [S&P 500] to keep rising," Bannister told the Financial Times. This sentiment reflects the intertwined fate of major tech stocks and the overall market.
Compounding Nvidia's woes is the recent sale of nearly $95 million worth of shares by its founder and CEO, Jensen Huang, under his Rule 10b5-1 trading plan. This sell-off, coming just before the company's annual shareholder meeting, has not helped investor sentiment. Moreover, Nvidia's 10-for-1 stock split, designed to attract retail investors, may have inadvertently spurred profit-taking among those new shareholders.
Paul Meeks, co-CIO at Harvest Portfolio Management, attributed the drop to profit-taking and concerns about the sustainability of AI data center spending. Speaking with Yahoo Finance, Meeks noted that Nvidia still appears undervalued compared to Cisco during the dotcom boom but cautioned that the stock could face continued pressure until it stabilizes around a support level like the 50-day moving average.
Nvidia's cutting-edge H100 chips, crucial for AI data centers and large language models like GPT-4, have positioned it as a leader in the AI chip market. Prominent customers include Elon Musk and OpenAI, the latter of which received a DGX server equipped with the latest H200 training chips hand-delivered by Huang himself. Nvidia's role as the global leader in AI chips, considered a matter of U.S. national security, has driven an unprecedented rally in its stock price, reminiscent of Tesla's 2020 surge.
Deutsche Bank highlighted Nvidia's rapid ascent, noting that the company added $1 trillion in market cap in just 30 days, a feat that took Warren Buffett's Berkshire Hathaway a century to achieve. This volatility underscores the difficulty in valuing a company with fundamentals improving at an unexpected pace. Despite the recent decline, Nvidia's share is expected to rebound, though more short-term pain may be in store.
The broader market has felt the impact of Nvidia's decline. The S&P 500 fell 0.3% on Monday, while the tech-heavy Nasdaq dipped 1.2%. Jim Reid, a research strategist at Deutsche Bank, noted signs of overexuberance in the U.S. market, particularly concerning AI.
Despite the sharp decline, some analysts, like Derren Nathan of Hargreaves Lansdown, remain optimistic about the broader market's resilience. He pointed out gains in other sectors, such as energy, financials, and utilities, suggesting that investor confidence in the broader economy remains intact.
The plunge in Nvidia's stock has raised concerns about market concentration. The "Magnificent Seven" mega-cap tech companies, including Nvidia, have driven much of the U.S. stock market's gains over the past year and a half. This concentration has made the market more susceptible to sharp declines in these stocks.
