The current state of the 2024 bull market can be best observed through the continuous red signals from critical recession markers and the substantial warnings of a possible bubble by numerous respected experts and analysts. This market surge, while remarkable, has always been on shaky ground.
Arguably, the spark that ignited the relentless ascent of the U.S. stock market, Nvidia (NASDAQ: NVDA), has once again revealed the vulnerability of its own growth, along with that of other major corporations.
Having accumulated over $2.5 trillion in market value since the surge of artificial intelligence (AI) began with the launch of ChatGPT in late 2022, the semiconductor behemoth plunged drastically, erasing $1 trillion from its market worth since surpassing $3.3 trillion in late June to the current level of €2.356 trillion.
Nvidia shares plummet by 16% in 30 days, nearly 30% in 40 days.
Although the stock of the prominent chipmaker remains a substantial 128.53% up in the year-to-date (YTD) chart, it underwent a drop of up to 16.55% in the last 30 days, ending at a closing price of $103.73.
Even with the positive after-hours performance, where NVDA shares rose by 6.20% to today’s Nvidia price of $110.08, the situation has not improved significantly as the semiconductor stock remains down by 11.53%, even after factoring in overnight movements.
Reasons behind Nvidia stock decline
Nvidia’s recent market downturn has been attributed to various factors, with one of the most common reasons being the stringent export regulations imposed on sales to China, a significant purchaser of the chipmaker’s products.
The restrictions on exports have been a contentious issue since late 2023. Although Nvidia introduced some compliant microchips to the market, Chinese enterprises have shown reluctance to embrace these downgraded components starting from early 2024.
The implications of these trade restrictions have reverberated across other major U.S. tech companies, and the downward trend in July extends far beyond just Nvidia.
The notably high price-to-earnings ratio (P/E) at 60.70, coupled with Nvidia’s rapid surge, raised concerns about the sustainability of the rally. These worries regarding overvaluation are not limited to NVDA alone, as evidenced by the decline impacting other tech giants like Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Super Micro Computer (NASDAQ: SMCI) in recent times.
The situation is particularly alarming for Nvidia, where despite its impressive growth demonstrated in the latest earnings report, the staggering market capitalization remains vastly disproportionate, even after shedding $1 trillion, at nearly 100 times the quarterly revenue.
Exacerbation of the downward trend by insider selling
The significant insider selling activities, including the CEO unloading over $250 million worth of shares within a month, have exacerbated the situation and added to the selling pressure.
According to a leading analyst, Javed Mirza, the continued collapse of NVDA shares is imminent as they drop below the 50-day moving average (MA), possibly plummeting to $94 or lower.
However, the surge in after-hours trading, combined with Nvidia’s potential reliance on strong support around $96, offers some positive prospects, hinting that the $1 trillion decrease over five weeks may be nearing its conclusion.
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