NVIDIA, the leading artificial intelligence (AI) chipmaker, has experienced a dramatic decline in its market value, losing approximately $406 billion this week alone. This drop, representing over 20 percent of its market capitalization, has had a noticeable impact on major equity benchmarks, reflecting broader concerns about the US economy and a possible overvaluation in the AI sector.
NVIDIA’s stock has plummeted by a fifth of its value in the past two weeks. This sharp decline highlights a growing issue for investors: NVIDIA’s market volatility has surged, now exceeding that of other leading tech companies and even making Bitcoin appear relatively stable by comparison. Over the last 30 trading days, NVIDIA’s shares have fluctuated between $90.69 and $131.26, with a particularly steep drop occurring on Tuesday. This volatility has pushed its 30-day realized volatility to approximately 80, which is about four times higher than Microsoft’s, double that of Bitcoin, and more significant than the volatility seen in high-profile meme stocks such as those associated with Donald Trump’s media company and Elon Musk’s Tesla Inc.
The recent downturn marks NVIDIA’s worst two-week performance in two years, as reported by Bloomberg. Contributing factors include a lackluster forecast, issues with the company’s Blackwell chip, and the recent escalation of an antitrust investigation by the US Justice Department. Moreover, the broader semiconductor industry faced additional setbacks when Broadcom Inc. issued a disappointing sales forecast.
Long-term prospects remain positive.
Despite the recent slump, NVIDIA’s stock has still provided substantial returns to investors this year, having more than doubled in value and adding $1.3 trillion to its market capitalization. The outlook for NVIDIA remains optimistic, with Wall Street analysts expecting the company to continue benefiting from the ongoing expansion of AI infrastructure. This growth is projected to persist for several more quarters.
NVIDIA’s largest clients, including Microsoft, Meta Platforms, Alphabet, and Amazon, which collectively account for over 40 percent of NVIDIA’s revenue, have maintained their spending plans. Recent financial results from NVIDIA reinforced this optimistic view, with revenue more than doubling and exceeding expectations. However, while adjusted earnings and revenue forecasts surpassed analyst predictions, they fell short of the higher end of estimates, leading to some investor disappointment.
This mismatch between investor expectations and actual results has raised concerns about the sustainability of AI spending. Nevertheless, the evolving AI landscape suggests that NVIDIA and other chipmakers will continue to experience significant volatility. For long-term investors, this volatility might present opportunities to invest in AI-related stocks at a lower entry point.
Slump brings opportunities
Rhys Williams, chief strategist at Wayve Capital Management, suggests that the AI sector is still in its early stages despite the current market turbulence. For those prepared to invest with a long-term perspective, the current market conditions could be a chance to acquire AI-related stocks at attractive prices. Williams advises that adding AI stocks could be a promising strategy for investors ready to commit capital today.
As the AI industry continues to develop and expand, the volatility observed in NVIDIA’s shares and those of other chipmakers is likely to persist. The percentage of NVIDIA’s revenue has maintained its spending plans. Recent financial results from NVIDIA reinforced this optimistic view, with revenue more than doubling and exceeding expectations. Despite the market turbulence, this resilience of key clients should reassure investors about the company’s stability. However, this should not deter investors, as the long-term potential of the AI sector is significant. Investors will need to carefully navigate this volatility while keeping an eye on the long-term potential of the AI sector, which remains promising.
