Nvidia Shares Plunge into Correction Territory

Nvidia shares entered correction territory on Monday, as a continued selloff wiped out a historic amount of value for the AI-focused chipmaker.

The stock tumbled 6.7%, marking its third consecutive negative session and its biggest one-day percentage drop since April.

Over the past three days, Nvidia’s market capitalization shrank by about $430 billion (R7.8 trillion), the largest three-day value loss for any company in history, according to data compiled by Bloomberg. This three-day decline of 13% pushed the stock past the 10% threshold, indicating a correction.

The downturn had a broader impact on the semiconductor sector, with the Philadelphia Stock Exchange Semiconductor Index falling 3% on Monday. Major players like Broadcom dropped 4%, Qualcomm Inc. fell 5.5%, ARM Holdings slumped 5.8%, and US-listed shares of Taiwan Semiconductor Manufacturing shed 3.5%.

Nvidia’s valuation fell below the $3 trillion (R54.2 trillion) mark, placing it behind Microsoft and Apple in terms of market size. Nvidia had briefly held the title of the world’s largest stock just last week.

“In the near-term, it is plausible that investors begin suffering from AI-fatigue or become more broadly concerned about index concentration,” commented Neville Javeri, portfolio manager and head of the Empiric LT Equity team at Allspring Global Investments.

Despite the recent slump, Nvidia remains up nearly 140% this year, making it the second-best performer among S&P 500 Index components, behind Super Micro Computer, another AI favorite. The stock experienced a drawdown of about 20% earlier this year but quickly rebounded to all-time highs.

Investor enthusiasm for Nvidia has been driven by the high demand for its chips used in AI processing. However, the scale of Nvidia’s rally — it surged about 240% over the course of 2023 — has sparked concerns about its valuation. The stock trades at 21 times estimated sales over the next 12 months, making it the most expensive in the S&P 500 by this measure.

Still, Wall Street remains largely bullish on Nvidia. Nearly 90% of analysts tracked by Bloomberg recommend buying the stock, and the average analyst price target suggests an upside of about 12% from current levels.

“The momentum in Nvidia and AI stocks in general has been staggering,” said Charlie Ashley, portfolio manager at Catalyst Funds. “In terms of investing, I would not be a contrarian right now.”

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