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Nvidia (NVDA) Stock Is Falling, Here’s Why
Nvidia (NVDA) Stock Is Falling, Here’s Why
What happened:
Shares of top graphics chip designer Nvidia (NASDAQ:NVDA) fell 6.5% in afternoon trading after shares continued to slide, suggesting investors are likely taking profits after a spectacular year-to-date run. Nvidia achieved a rare feat earlier this month (June 2024): it became the world’s most valuable stock, with a market cap of more than $3 trillion and a YTD return of more than 150% in June 2024.
Recent declines have suggested that some may be starting to think the stock price is associated with too much optimism. We would note that the company has not shown any failures lately, with Q1 2024 earnings being quite strong and above expectations.
The quarter specifically exceeded Wall Street’s sales and profitability expectations, primarily due to better-than-expected results in its data center and automotive segments. Despite mounting macroeconomic headwinds amid a cyclical downturn, which has hurt the performance of other semiconductor companies, Nvidia provided forward-looking revenue guidance ahead of the Consensus, demonstrating that demand for its products – especially its much-coveted AI solutions – remains strong.
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What the market is telling us:
Nvidia shares are very volatile and in the last year have seen 11 movements greater than 5%. In this context, today’s change indicates that the market considers this news to be significant, but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 27 days ago when shares gained 7.5% due to continued strong momentum following a strong earnings report the week before. That helped drive the Nasdaq to a record high. The high-tech index surpassed the 17,000 mark.
There was also some positive news over the weekend. The report reported that Elon Musk’s AI company, xAI, announced plans to purchase AI chips from Nvidia for its new supercomputer. On Monday, May 27, 2024, xAI announced its series B funding round on the social media platform X.com (formerly called Twitter). The AI startup raised $6 billion to “bring xAI’s first products to market” and “build advanced infrastructure.”
According to reports, the development of the infrastructure is likely to give rise to a massive computing system – dubbed “the Gigafactory of computing” – that is expected to utilize 100,000 semiconductors based on NVDA’s H100 GPU, and with an estimated size greater than 4x the largest existing cluster.
The story continues
Overall, the report suggested that it is still early days for the hot AI market, while also providing more definitive insight into the growing demand for Nvidia’s AI chips.
Nvidia is up 148% since the start of the year, but at $119.60 per share it is still trading 11.8% below its 52-week high of $135.58 in June 2024. Investors who bought $1,000 worth of Nvidia stock 5 years ago would now be looking at an investment of $31,347.
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