NVIDIA Whiplash

Nvidia Slide Underscores Volatility Stalking US’s Hottest Stock

The artificial-intelligence boom has made one of the hottest US stocks even more volatile than the largest cryptocurrency.

BloombergEmily Forgash

NVIDIA's stock fell 7% yesterday, wiping out nearly $200B in market cap in a single day. That's slightly more than the entire market caps of Disney and American Express, slightly less than one whole Netflix. But this steep drop is just the latest in a trend over the past three weeks:

The recent reversal of fortune — which has knocked its share price down 23% since July 10 — is underscoring a risk that didn’t matter when Nvidia’s stock price did nothing but go up: By one key measure, at least, it’s been roughly twice as volatile as Bitcoin.

Yeah, that's wild. But let's not get too carried away:

Even with this month’s retreat, Nvidia is still up about 109% this year — more than any other stock in the S&P 500 but Super Micro Computer Inc., another company that’s benefitting from the flood of money being spent on equipment for AI applications.

And yet:

But over the past two weeks, investors have pulled back from large tech stocks like Nvidia amid growing doubts about whether all that spending on AI will pay off. Instead, they’ve plowed into small-cap companies, which have cheaper valuations and will benefit once the Federal Reserve starts cutting interest rates.

Those three paragraphs, back-to-back, from Bloomberg highlight the feeling of whiplash here. And guess what? The stock is currently back up about 7% in pre-market trading right now. Still, this is seemingly in line with what I wrote about six weeks ago:

Certainly a part – and likely a large part – of the run-up in NVIDIA's stock is simply exuberance, irrational or not, around AI and the notion that NVIDIA is the most straightforward bet to place in that space. It's less like the GameStop nonsense and perhaps more akin to what happened with Tesla a few years ago, when the company was valued far more than all other car companies *combined*. It still is, but the stock has come back to Earth a bit with the period of exuberance over and the realities of the world setting in.

The same thing will happen to NVIDIA at some point, but the question is when and how high can the stock go before then? If I knew that, I would place a bet (one way or the other), but the reality is that no one does. I asked ChatGPT to guess recently and – well, it sort of hallucinated. Can you blame it? Trying to parse this stock run, I'd hallucinate too. Kudos to CEO Jensen Huang for keeping it together.

Especially in the midst of a pretty obvious/cliched market top signal...

That "top" signal was NVIDIA Jensen Huang signing the "top" of a young lady fan of the company. Meanwhile, ChatGPT's answer as to where NVIDIA's market cap would be in five years? $2.49T. NVIDIA's market cap today? $2.55T. Two months is not five years, of course. A lot is going to change between now and then – understatement of the decade. But if anyone thought NVIDIA's stock was going to keep going and going once it shot past $3T and became the most valuable company in the world, well, they should look at the history of NVIDIA's stock, if nothing else.

To be clear, I'm not suggesting that the AI spending boom is over. There is still crazy stuff going on, and NVIDIA is the clear beneficiary – unless Apple is involved, it seems – but it feels like Wall Street's mood has shifted a bit. And not just about Meta's spend anymore. What will shift it back? Before it permanently turns, that is – as predicted back in April...

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Update July 31, 2024:

As expected, NVIDIA's stock came roaring back to life today, but will it be enough to end the whiplash? If their Big Tech brethren can continue to convince Wall Street that the AI spend is warranted, perhaps. But not everyone is convinced.

Update August 2, 2024:

And back down we go... this time with the words "bubble" and "overhyped" – and then there's this fantastic picture:

Nvidia: Tech stocks take a pounding as hedge fund Elliott warns AI is in ‘bubble land’

Intel suffers its single biggest one-day drop in decades, as sentiment sours amid overextended valuations and a darkening economic outlook.

FortuneChristiaan Hetzner

Update August 5, 2024:

Oh boy. NVIDIA's stock was down over 10% in pre-market trading before coming back a bit as the market has been open – down around 7% now. Of course, the entire market is a bloodbath right now with the Dow down over 1,000 and NASDAQ (where NVIDIA sits) down almost 600. Of course, those are 2.5% and 3.5%, respectively. NVIDIA is pulling the market down, in part. Why? In part, chip delays, undoubtedly. But also general fears of AI overspend, it seems.

NVIDIA is hardly the only one pulling the market down today – cough Apple cough, thanks Uncle Oracle.