The prevailing state of the 2024 bull market can be aptly analyzed through the persistent negative indicators from crucial economic downturn indicators and the substantial alarms of a potential bubble by numerous esteemed specialists and analysts. This market surge, while noteworthy, has consistently been on unstable footing.
Debatably, the catalyst that sparked the relentless rise of the U.S. stock market, Nvidia (NASDAQ: NVDA), has once again exposed the fragility of its own expansion, along with other major firms.
After amassing over $2.5 trillion in market capitalization since the rise of artificial intelligence (AI) commenced with the introduction of ChatGPT in late 2022, the semiconductor giant plummeted significantly, wiping out $1 trillion from its market value since surpassing $3.3 trillion in late June to the current level of €2.356 trillion.
Nvidia shares nosedive by 16% in 30 days, nearly 30% in 40 days.
Although the shares of the prominent chipmaker have a substantial 128.53% increase in the year-to-date (YTD) chart, they experienced a decline of up to 16.55% in the last 30 days, closing at $103.73.
Despite the positive performance in after-hours trading, where NVDA shares climbed by 6.20% to reach today’s Nvidia price of $110.08, the situation hasn’t shown significant improvement as the semiconductor stock remains down by 11.53%, accounting for overnight fluctuations.
Causes of Nvidia stock deterioration
The recent market downturn of Nvidia can be attributed to various factors, with one prominent reason being the strict export regulations imposed on sales to China, a significant buyer of the chipmaker’s products.
The export restrictions have been a contentious issue since late 2023. While Nvidia introduced some compliant microchips to the market, Chinese corporations have been hesitant to adopt these downgraded components since early 2024.
The repercussions of these trade constraints have resonated across other major U.S. tech firms, and the downward trend in July extends well beyond just Nvidia.
The notably high price-to-earnings ratio (P/E) at 60.70, alongside Nvidia’s rapid expansion, have raised concerns about the sustainability of the surge. These apprehensions regarding overvaluation are not restricted to NVDA alone, as seen in the impact on other tech giants like Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Super Micro Computer (NASDAQ: SMCI) in recent times.
The scenario is particularly concerning for Nvidia, where despite its remarkable growth showcased in the latest earnings report, the vast market capitalization remains disproportionately high, even after shedding $1 trillion, standing at almost 100 times the quarterly revenue.
Intensification of the downward spiral through insider selling
The considerable insider selling actions, including the CEO disposing of over $250 million worth of shares within a month, have worsened the situation and contributed to the selling pressure.
According to a leading analyst, Javed Mirza, the ongoing decline of NVDA shares is inevitable as they dip below the 50-day moving average (MA), potentially dropping to $94 or below.
However, the uptick in after-hours trading, combined with Nvidia’s potential reliance on solid support around $96, offers some optimistic outlook, suggesting that the $1 trillion decline over five weeks may be approaching its culmination.
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