Over the past few days, Nvidia shares have lost billions in market value and the chipmaker lost its position as the most valuable stock on Wall Street. But the concerns are likely to be short-lived.
Nvidia’s stock had been falling since briefly overtaking Microsoft as Wall Street’s most valuable stock last week, and it fell nearly 13% in just three days, its worst streak since 2022. The company’s $2.97 trillion market cap puts it behind Microsoft at $3.34. trillion dollars, and Apple, at $3.22 trillion.
Because Nvidia has become so massive, its stock moves carry extra weight on the S&P 500 and other indexes. It was by far the heaviest weight in the S&P 500 on Monday.
Market observers would prefer greater diversification, fearing recently that Nvidia and a handful of other companies are responsible for much of the S&P 500’s returns. They would prefer a market where many stocks share in the gains.
There have been almost insatiable demand for Nvidia chips powering artificial intelligence applications and the company has played a significant role in recent record highs in the U.S. stock market, even as the economy grows slows down under weight high interest rates. But the AI boom is moving at such a rapid pace that it is raising concerns about a possible stock market bubble and unrealistically high expectations from investors.
However, investors’ concerns may ease as Nvidia Corp.’s stock rose more than 5% in Tuesday trading. Nvidia’s rebound helped the Nasdaq Composite Index rise and head for its first gain in four days.
Derren Nathan, head of equity research at Hargreaves Lansdown, said in a statement that while Nvidia shares have fallen in recent days, you also need to look at the bigger picture.
“Stocks still gained 190% over 12 months, so it’s not surprising that some investors are taking profits,” he said.
Nathan also isn’t worried about the potential larger-scale implications. “Even though Nvidia sneezed, the market as a whole didn’t catch a cold with a mix of less extreme moves in either direction for the rest of the Magnificent 7,” he said.
THE Magnificent 7which includes Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla, are a small group of stocks that are responsible for a large portion of the total return of the US stock market.
Investors could also welcome a better-than-expected situation consumer confidence reading and a strong job market. American employers added 272,000 jobs last montha sign that businesses still have enough confidence in the economy to continue hiring despite still high interest rates.
In the long term, the market may remain optimistic about Nvidia’s prospects. Analysts believe the company income for the fiscal year that ends in January 2025, will reach $119.9 billion, about double its revenue for fiscal 2024 and more than four times its revenue from the previous year.
