As perhaps best seen from the seemingly endless flashes of red from critical recessionary indicators and the sheer number of prominent experts and analysts warning of a bubble, the 2024 bull market – though impressive – was never entirely stable.
Arguably the biggest start of the relentless rise of the U.S. stock market, Nvidia (NASDAQ: NVDA) has, in recent weeks, again demonstrated the fragility of its – and of other major companies – rise.
After gaining more than $2.5 trillion in valuation since the artificial intelligence (AI) boom started in earnest with the release of ChatGPT in late 2022, the semiconductor giant entered a massive fall and wiped $1 trillion from its market capitalization since its peaks above $3.3 trillion in the second half of June to the press time levels at $2.55 trillion.
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Nvidia stock collapses 16% in 30, nearly 30% in 40 days.
Indeed, though the blue-chip chipmaker’s stock remains an impressive 128.53% in the green in the year-to-date (YTD) chart, it fell as much as 16.55% in the last 30 days to reach its latest closing price of $103.73.
Even the positive extended session, which saw NVDA shares climb 6.20% to Nvidia price today, at press time, of $110.08, does not significantly improve the situation as the semiconductor stock remains 11.53% in the red even once the overnight action is accounted for.
Why Nvidia stock is crashing
Nvidia’s recent crash has been linked to multiple factors, with the tightening restrictions on exports to China – a major buyer of the semiconductor giant’s chips – being one of the most frequently cited.
Indeed, the export restrictions have been a point of contention since late 2023 and, though Nvidia created some rules-compliant microchips for the market, Chinese companies have been, since the start of 2024, less than enthusiastic about accepting the downgraded components.
The pressure from these technology restrictions had an impact on other American big tech firms and the July downturn extends significantly beyond Nvidia.
The exceptionally high price-to-earnings ratio (P/E) – which stood at 60.70 – especially when paired with Nvidia’s rapid rise, brought forth concerns about how fragile the rally actually is.
Once again, the fears of overvaluation extend beyond NVDA shares as seen from the decline that has affected other high-tech companies such as Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Super Micro Computer (NASDAQ: SMCI) in recent weeks.
Still, the situation is particularly concerning for Nvidia as, for example, its latest earnings report – despite showing the company has been growing rapidly – still demonstrates just how overvalued NVDA is given the firm’s market cap is, even after shedding $1 trillion, approximately 100 times greater than the quarterly revenue.
Insider selling exacerbates the downtrend
The extensive insider selling activity, which even included the CEO of the chipmaker offloading more than $250 million worth of shares within a month, exacerbated the issue and added to the downward pressure.
Finally, as one prominent analyst – Javed Mirza – recently pointed out, NVDA stock remains in danger of a continued collapse due to it falling below the 50-day moving average (MA) and may yet collapse to $94 or below.
Nonetheless, the extended session rally, as well as the fact that Nvidia can somewhat rely on a significant support zone near $96, offers some silver lining and some reason for hope that the 5-week, $1 trillion wipe may be nearing its end.
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