Nvidia's $406 Billion Loss Raises Concerns, Makes Bitcoin Look Stable

Nvidia Corp., a leading name in artificial intelligence (AI) and chipmaking has experienced a massive drop in market value, losing approximately $406 billion this week. This plunge has not only weighed heavily on key equity benchmarks but has also raised concerns among investors about the stability of the US economy and the AI sector’s rapid growth trajectory. The volatility seen in Nvidia's stock performance now far exceeds that of its "Magnificent Seven" tech peers, even making Bitcoin—a traditionally volatile asset—seem relatively stable by comparison.

The drop represents a 20% decline in Nvidia’s market value over the past two weeks. This level of fluctuation has driven the company's 30-day realized volatility to around 80%, which is four times that of Microsoft Corp. and double the volatility levels seen in companies like Tesla Inc. Such turbulence reflects the challenges and uncertainties facing investors in the current market environment.

This two-week decline is Nvidia’s worst in two years, according to data from Bloomberg. The downturn followed a series of disappointing news: a tepid forecast, issues with its new Blackwell chip, and a less-than-encouraging sales forecast from Broadcom Inc., another major player in the semiconductor industry. Adding to the market's anxiety, the US Department of Justice announced an investigation, which further dented investor confidence.

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Rhys Williams, the chief strategist at Wayve Capital Management LLC, stated that the current market environment is highly challenging and that the future direction for Nvidia and the AI trade, in general, is still uncertain. However, he acknowledged that this could be a buying opportunity for long-term investors who believe in the sustained growth of AI technology.

Despite the recent turbulence, Nvidia’s stock has been highly rewarding for its investors this year. Even after the recent slide, shares are up more than 100% year-to-date, contributing an additional $1.3 trillion in market value. The company’s latest quarterly results revealed that revenue more than doubled, though it still fell short of the most optimistic market expectations. The results did little to appease investors who were hoping for a more robust performance, leading to further concerns about the long-term outlook.

Nvidia's primary customers—tech giants such as Microsoft Corp., Meta Platforms Inc., Alphabet Inc., and Amazon.com Inc.—which together account for over 40% of Nvidia's revenue, have all reaffirmed their spending plans in their most recent financial reports. This continued commitment to AI infrastructure investment is expected to drive Nvidia's growth in the coming quarters.

However, the company's inability to exceed the highest end of analysts’ revenue estimates has fueled scepticism among some market participants, who have grown accustomed to Nvidia consistently outperforming expectations. As a result, there is a sense of unease as investors digest the latest financial reports and consider the implications for Nvidia’s future.

Looking ahead, while short-term volatility is likely to persist, some market analysts suggest that now might be an opportune time for long-term investors to consider adding Nvidia to their portfolios. Rhys Williams of Wayve Capital remarked, "For a long-term investor, this is a good time to start picking away. If somebody handed me new money today, I would be enthusiastically adding some AI-related stocks."

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The broader outlook for Nvidia remains cautiously optimistic. Despite recent setbacks, the company is well-positioned to capitalize on the continued demand for AI technologies, provided it can navigate the current market challenges and maintain its growth momentum.

Reference: MoneyControl