Nvidia Stock Plunge: Is There Really Cause for Concern?

Nvidia stock experienced a sharp decline at the beginning of the week, sparking fears that a bubble might be bursting. However, a closer examination suggests there may not be much to worry about for Jensen Huang’s company at this stage.

For many, the boom in generative AI is synonymous with OpenAI and its chatbot, ChatGPT. While numerous competitors have emerged, some outperforming Sam Altman’s company, another player has been dominating behind the scenes Nvidia. Nvidia’s chips are in high demand worldwide for developing advanced AI systems. The company has found itself in an unusual position, almost enjoying a de facto monopoly, with its stock seeing a meteoric rise. This rapid ascent has now been interrupted by a steep drop in stock price the first such decline in 18 months. However, the fundamentals remain strong.

Nvidia Stock Drop: A Historic Record

Until this week, the record for the largest single-day value loss by a publicly traded company was held by Meta. On February 3, 2022, Mark Zuckerberg’s firm saw its stock drop by 26%, resulting in a market capitalization loss of $232 billion. This record was surpassed when Nvidia closed its trading session on Wednesday with a 9.53% decline, equivalent to a market value loss of $279 billion (approximately 252 billion euros) in just one day.

Nvidia Stock Drop: Allegations of Anti-Competitive Practices

Nvidia is now under increased scrutiny from investors. Last week, the release of its quarterly results triggered a decline in its stock price, even though the numbers were slightly better than expected. This week’s decline was fueled by media reports that the U.S. Department of Justice is investigating the company for potential anti-competitive practices. Nvidia is suspected of using tactics to prevent some of its clients from switching suppliers or diversifying their supply chains.

Nvidia Stock Drop: Investors Returning to Reality

Despite the recent drop, there is no cause for panic. The decline is likely a market correction, potentially involving insider trading, as suggested by U.S. House of Representatives Speaker Nancy Pelosi in a message posted on X (formerly Twitter). This drop does not reflect Nvidia’s current or future value.

Broadly, Nvidia’s image has shifted among investors. While the company continues to generate enormous revenues, it is no longer seen as a firm delivering spectacular surprises but rather as a highly profitable enterprise. This sentiment was echoed during last week’s earnings presentation. Moving forward, Nvidia’s stock price, which has seen a steep upward trajectory, may stabilize, but Jensen Huang’s company will remain highly profitable.

Nvidia Stock Drop: Nvidia Remains Unchallenged

The recent stock market session does not diminish Nvidia’s essential role in the global tech ecosystem. Nvidia’s dominance is reinforced as investors push the stock back up. The company’s chips are still indispensable for developing advanced AI systems worldwide. The Hopper H100 chips, in particular, are in high demand and fetch premium prices globally. In China, where exports are banned, experts are going to great lengths to acquire them rather than turning to competitors. This is because, at present, no other product can match the American giant’s offerings. Some buyers have paid up to $40,000 per unit for the coveted H100 chips.

Nvidia is also well-prepared for the future. In March, it unveiled the Blackwell GPUs, introducing the world to its upcoming B200 and GB200 processors powerhouses of performance, according to Jensen Huang. The Nvidia CEO claimed that the B200 chip would deliver five times the performance of the H100 in AI applications. While some issues were identified with these chips, Nvidia announced last week that it had found solutions to address these problems before their planned release at the end of the year. This sets the stage for another strong year in 2025.

Conclusion

While Nvidia recent stock drop has raised concerns, the fundamentals of the company remain robust. Nvidia continues to dominate the AI chip market, and its upcoming product launches promise further growth. Investors may be adjusting their expectations, but Nvidia’s position as a leader in the tech industry is not in jeopardy. The company remains well-positioned to capitalize on the ongoing AI boom and to maintain its market leadership well into the future.

Source : Business Insider, BFM TV, BBC, Tradingsat