Nvidia's Value Drops $400 Billion as Shares Enter Correction Zone

Nvidia's Recent Stock Plunge Reflects AI Market Volatility

In a marked downturn, Nvidia Corp., the prominent AI-driven chipmaker, experienced a significant decline in its stock value, triggering correction territory. On Monday, the stock fell by 4.8%, marking its third consecutive negative session and dropping 12% over three days. This steep decline surpasses the 10% threshold typically signifying a market correction.

The tumble in Nvidia's stock has had a broader impact on the semiconductor sector. The Philadelphia Stock Exchange Semiconductor Index declined by 2.2% on Monday, with shares of industry heavyweights like Broadcom Inc., Taiwan Semiconductor Manufacturing Co., and Qualcomm Inc. each falling by at least 2%.

The three-day selloff in Nvidia's shares has wiped out over $400 billion from its market capitalization. This drop has brought Nvidia's market cap below the $3 trillion mark, positioning it once again behind tech giants Microsoft Corp. and Apple Inc. Notably, Nvidia had briefly clinched the title of the world's largest stock by market cap just last week.

Market Sentiments and Investor Concerns

Neville Javeri, a portfolio manager and head of the Empiric LT Equity team at Allspring Global Investments, commented on the situation, suggesting that the near-term outlook might see investors growing weary of the high enthusiasm around AI or becoming wary of index concentration. Despite the rapid decline, Nvidia's stock still boasts a notable year-to-date increase of over 140%, making it the second-best performer in the S&P 500 Index, following Super Micro Computer Inc., another key player in the AI sector.

Earlier this year, Nvidia experienced a similar setback, with its stock drawing down by approximately 20%, although it swiftly rebounded to achieve new all-time highs. The ongoing high demand for Nvidia's AI processing chips has attracted investors, fueling a rally that saw the stock surge around 240% throughout 2023. This exuberant rally, however, has raised concerns regarding Nvidia's valuation. The stock currently trades at nearly 23 times its estimated sales for the next 12 months, positioning it as the most expensive within the S&P 500 by this metric.

Wall Street Analysts' Perspective

Despite these valuation concerns, Nvidia remains a favored pick on Wall Street. Almost 90% of analysts tracked by Bloomberg have a buy recommendation for the stock, with the average price target suggesting a potential upside of about 10% from the current levels. Charlie Ashley, a portfolio manager at Catalyst Funds, highlighted the incredible momentum seen in Nvidia and AI stocks in general, cautioning against contrarian investing strategies in the current climate.