Nvidia enters correction territory as slump erases $430bn

Nvidia shares entered correction territory on Monday, as an ongoing selloff erased a historic amount of value for the AI-focused chipmaker.

The stock fell 6.7 per cent, its third straight negative session and biggest one-day percentage drop since April. The three-day drop erased about $430 billion from Nvidia’s market capitalization, the biggest three-day value loss for any company in history, according to data compiled by Bloomberg.

Shares fell 13 per cent over the period, past the 10 per cent threshold that represents a correction. The drop weighed on chipmakers with the Philadelphia Stock Exchange Semiconductor Index falling 3 per cent on Monday. Broadcom fell 4 per cent while Qualcomm Inc. dropped 5.5 per cent and ARM Holdings slumped 5.8 per cent. US-listed shares of Taiwan Semiconductor Manufacturing Co shed 3.5 per cent.

The drop put Nvidia’s valuation back below the $3 trillion threshold, and under both Microsoft and Apple in size. Nvidia briefly claimed the title as the world’s largest stock last week.

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

Even with the slump, Nvidia remains up nearly 140 per cent this year, making it the second-best performer among S&P 500 Index components, behind Super Micro Computer, another favourite AI play.

The stock suffered a drawdown of about 20 per cent earlier this year, although it quickly returned to all-time highs.

While investors have flocked to Nvidia given the sky-high demand for its chips used in AI processing, the scale of Nvidia’s rally — it soared about 240 per cent over the course of 2023 — has underlined 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, it remains well liked on Wall Street. Nearly 90 per cent of the analysts tracked by Bloomberg recommend buying, and the average analyst price target points to upside of about 12 per cent 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.” – Bloomberg