Nvidia (NASDAQ:NVDA) is truly thriving. After booting the two other tech giants from top spot, it rose 3.2%, reaching a $3.3 trillion market cap on June 18. Nvidia stock impressed the market by reaching a $2 trillion market cap in February. Strong results caused a nearly 200% surge in the stock this year.
Nvidia has had recent stock fluctuations. The stock has also faltered in recent trading days. Investors are trying to discern whether the company’s valuation has gotten too far ahead of itself, or if the stock is worth what the market says it is. Let’s dive into whether there’s anything to worry about.
The Declines in Nvidia Stock
Nvidia has defied expectations over the past 18 months, rising from around $20 per share to a peak of more than $140 per share in June.
This week, shares fell below the $120 level, dropping Nvidia to third place in market cap at $4.36 trillion. Some experts have suggested the decline might be due to AI-fatigue or concerns about index concentration.
Nvidia, which had skyrocketed 1,000% since autumn 2022, saw its third consecutive drop amid soaring demand for its AI-focused chips.
This surge in demand has propelled the stock market to record highs despite slowing economic growth because of high interest rates. However, the frenetic AI boom has sparked concerns of a market bubble and investor over-optimism.
Since finding support around the 50-day moving average in April last year, Nvidia stock has since climbed sharply, with investors buying on dips. However, Thursday’s intraday reversal from their all-time high formed a bearish engulfing pattern, indicating a potential downside.
If prices continue to retrace, investors may watch for support around $119 and $110. Failing to hold these levels could lead shares to revisit the $97 mark, connecting previous highs. At least, that’s according to some of the technical analysis people following the Nvidia stock (I don’t subscribe to that much).
AI Stocks Are Falling Too
Super Micro Computer, a seller of servers fitted with Nvidia’s AI chips, fell 8.7%, while competitor Dell dropped 5.2%.
Chip designer Arm fell 5.8%, and semiconductor giants Qualcomm and Broadcom declined by 5.5% and 3.7%, respectively. These companies had been major gainers recently, benefiting from heavy investor bets on AI spending.
Nvidia’s value nearly tripled in the past year, despite a recent three-day slump.
Last week, Nvidia skyrocketed past Apple and Microsoft in the most valuable company charts, reaching $3 trillion. But this week is not a good time for Nvidia, as it became part of S&P 500’s biggest losers.
After its strong performance, market investors have been locking in some gains. Stephanie Link of Hightower suggested Nvidia shares are “overloved,” though demand for Nvidia’s AI GPUs from major companies remains high.
NVDA is Still a Buy
Still, Nvidia stands out as a prime AI investment. While concerns about AI are valid, skepticism about Nvidia stock seems unfounded.
The company’s recent earnings report, with record revenues and strong margin growth, reflects sustained high demand. This underlines the genuine excitement and investment in AI.
Nvidia’s stock split further supports its appeal as a top AI investment choice.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
