Nvidia surged overnight

Latest update time：2024-06-26

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Nvidia shares rebounded on Tuesday after a multi-day sell-off that saw the U.S. chipmaker lose its crown as the world's most valuable public company.

Nvidia closed up nearly 7% on Tuesday, reversing three days of losses that had some investors worried that excitement about the key role the company is expected to play in the artificial intelligence revolution may be cooling.

“While we do believe in AI, there have been signs of excessive exuberance in U.S. markets over the past month,” Deutsche Bank research strategist Jim Reid wrote in a note Monday.

On June 18, the chip manufacturing giant’s market value reached $3.34 trillion, surpassing Microsoft to become the world’s most valuable company. However, in the following three trading days, the company’s market value shrank by $430 billion.

Despite Tuesday's gains in Nvidia's stock price, Nvidia's market cap is now $3.10 trillion, dropping to third place behind Microsoft (MSFT) and Apple (AAPL), which have market caps of $3.35 trillion and $3.21 trillion, respectively.

"What we're seeing with Nvidia is typical volatility, which is to be expected when the share price moves as fast as Nvidia has," Jochen Stanzl, chief market analyst at trading platform CMC Markets, told CNN.

Nvidia’s stock has been on a tear, surging more than 161% since January. The company’s chips power AI systems, including generative AI, the technology behind OpenAI’s ChatGPT, which can create text, images and other media.

Artificial intelligence has the potential to revolutionize the way we live and work and deliver huge returns to investors, with the frenzy over artificial intelligence driving most of the stock market's returns over the past year and a half.

Nvidia is one of the so-called "Big Seven," a group of ultra-capitalized tech companies whose stock prices far outperformed the broader U.S. stock market last year. While the S&P 500 gained 24.2% in 2023, the Big Seven's stock prices rose more than 100% on average.

Deutsche Bank said in a note published Monday that with these seven stocks dominating, “U.S. equities are approaching their most concentrated market in history.” On Tuesday, the bank wrote that Nvidia’s drop the day before “depressed U.S. equity returns more broadly.”

On Tuesday, gains in Nvidia shares helped lift the tech-heavy Nasdaq 1.3%. The S&P 500 closed up 0.4% on Tuesday. The Dow Jones Industrial Average closed down 0.8%.

Short sellers make big money

Data from Nvidia data analysis company Ortex Technologies showed that short sellers have made nearly $5 billion in paper profits from the AI chip design company's sharp sell-off in the past three trading days.

Since June 18, when its shares skyrocketed to become the world's most valuable company, the company's shares have fallen 13%, wiping out $430 billion in market value.

Ortex said short sellers took advantage of Nvidia's 6.6% drop on Monday to make $2.4 billion in profits, the biggest one-day gain since it began publishing data in 2019.

Some market participants attributed Nvidia's pullback to investors moving out of high-flying artificial intelligence stocks and into other industries as 2024 approaches the midpoint.

Despite the recent decline, optimism about Nvidia's role in driving the boom in artificial intelligence has helped push the stock up 145 percent this year, making it the second-best performer in the S&P 500 (.SPX).

But Philippe Laffont, founder of hedge fund Coatue Management, said on Tuesday he was concerned that geopolitical conflict could affect the chip industry and artificial intelligence development, including Nvidia.

Why Nvidia Stock Price Is Falling

Last week, artificial intelligence chip maker Nvidia surpassed household names such as Apple and Microsoft to become the world's most valuable company, a moment that seemed to declare victory for the AI craze on Wall Street.

However, over the next three trading days, Nvidia's stock price plummeted 13%. The company's market value evaporated by more than $500 billion, falling to the third largest company by market value.

Market analysts told ABC News that the big losses were not a condemnation of AI or Nvidia, but rather a massive, routine sell-off as traders sought to cash in on some of the gains the chipmaker has made during its meteoric rise.

Analysts are divided over whether the recent slide provides a valuable opportunity for investors to pick up shares at a good price.

"It's normal for stocks to take a breath. What's not normal is that Nvidia didn't take a breath for so long," Steve Sosnick, chief strategist at trading firm Interactive Broker, told ABC News.

It’s hard to overstate Nvidia’s success before its recent slide. Most of the computer chips sold by the California-based company are used in new AI products like ChatGPT, and its stock price has soared nearly 700% in two years.

Even taking into account the recent decline, Nvidia's stock price is up nearly 150% since the beginning of 2024.

After a long rally, stocks often fall into a phenomenon called profit-taking, where traders sell some of their shares to lock in gains. In this case, analysts said, the typical pullback was bigger than expected because the previous gains were unusually steep.

“It’s not normal for the stock price to go up this much,” Sosnick said. “So it’s also not normal for the stock price to need to see a little bit of profit taking.”

Ivan Feinseth, market analyst at Tigress Financial, agreed. "The stock has been on a tear. Some people who are more short-term oriented think it's time to take some profits," Feinseth told ABC News.

While analysts noted that the trend was related to market behavior rather than business performance, they rejected suggestions of new weakness in the AI sector or in Nvidia.

In its earnings release last month, the company reported revenue of $26 billion, up a staggering 262% from the previous year. Profits were up more than 600% over the same period.

In March, the company unveiled its latest and most powerful chip, Blackwell. In a statement, Nvidia said several major tech companies, including Amazon, Google, Meta, Microsoft and OpenAI, will adopt the new technology.

"It's Nvidia's world -- everyone else is paying," Dan Ives, managing director of equity research at investment firm Wedbush, told ABC News.

While analysts share the same view on why the stock has fallen, they differ in their assessment of whether the current timing provides an opportunity for investors to buy the stock.

Feinseth encouraged investors to buy the stock because he expects the decline to rekindle interest in the company and push the share price higher. “This is a stock that everyone wants to own, and everyone will react to any sell-off,” he said.

Early trading on Tuesday seemed to confirm that view. By midday, the stock had risen nearly 5%, recovering most of the losses in recent days.

"It was just a minor accident," Ives said.

In contrast, Sosnick warned against buying Nvidia shares unless the stock price falls further. Otherwise, he added, the relatively modest potential gains would not be enough to offset the risk of continued volatility.

“The stock isn’t particularly expensive, but it’s not particularly cheap either,” Sosnick said.

Reference Links

https://www.reuters.com/technology/nvidias-shares-surge-over-5-after-430-billion-market-slump-2024-06-25/

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