Nvidia, the tech giant known for its AI-focused semiconductor technology, experienced a significant downturn in its stock value on Monday, with shares plunging into correction territory amid a broader market selloff. The company’s stock tumbled by 6.7%, marking its largest single-day percentage decline since April and the third consecutive session of losses. This downturn wiped out approximately $430 billion (R7.8 trillion) from Nvidia’s market capitalization.
According to Bloomberg’s compiled data, this represents the most substantial three-day loss of market value for any company on record. Over the three-day period, Nvidia’s shares dropped by 13%, surpassing the 10% threshold commonly used to define a market correction.
The decline in Nvidia’s stock had a ripple effect across the semiconductor industry, contributing to a 3% fall in the Philadelphia Stock Exchange Semiconductor Index on the same day. Other chipmakers also felt the impact, with Broadcom’s shares decreasing by 4%, Qualcomm Inc. by 5.5%, ARM Holdings by 5.8%, and US-listed shares of Taiwan Semiconductor Manufacturing by 3.5%.
As a result of the selloff, Nvidia’s valuation fell below the $3 trillion (R54.2 trillion) mark, positioning it behind tech giants Microsoft and Apple in terms of market size. Just last week, Nvidia had briefly ascended to the status of the world’s largest stock by market capitalization.
Neville Javeri, portfolio manager and head of the Empiric LT Equity team at Allspring Global Investments, suggested that investors might start to experience “AI-fatigue” or grow concerned about the concentration of certain stocks in market indices, which could affect short-term sentiment.
Despite the recent slump, Nvidia’s stock has seen a remarkable surge of nearly 140% this year, ranking it as the second-best performer in the S&P 500 Index, just behind Super Micro Computer, another stock favored for its AI capabilities.
Earlier in the year, Nvidia’s stock underwent a drawdown of about 20%, but it swiftly rebounded to reach new all-time highs. The company’s rapid rally, which saw an approximate 240% increase throughout 2023, has sparked debates over its lofty valuation.
Currently, Nvidia’s stock is trading at 21 times its estimated sales for the next 12 months, positioning it as the most expensive stock in the S&P 500 by this metric. Nonetheless, the stock continues to be popular among Wall Street analysts. Nearly 90% of analysts tracked by Bloomberg maintain a buy recommendation, and the average analyst price target suggests a potential 12% increase from its current levels.
Charlie Ashley, a portfolio manager at Catalyst Funds, commented on the extraordinary momentum of Nvidia and AI stocks in general, advising that in terms of investment strategy, now is not the time to take a contrarian stance.
