Nvidia enters correction territory as crisis wipes out $400 billion

(Bloomberg) – Shares of Nvidia Corp. fell on Monday, with the AI-focused chipmaker entering correction territory as it extends a recent strong selloff.

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The stock fell 4.8% and is on track for its third consecutive negative session. It fell 12% over the three-day period, surpassing the 10% threshold that represents a correction. The decline weighed on chipmakers, with the Philadelphia Stock Exchange’s semiconductor index falling 2.2% on Monday. Broadcom Inc., Taiwan Semiconductor Manufacturing Co. and Qualcomm Inc. were all down at least 2%.

The three-day drop erased more than $400 billion from Nvidia’s market capitalization, bringing it below the $3 trillion threshold, as well as below Microsoft Corp. and Apple Inc. in terms of size. Nvidia briefly claimed the title of the world’s largest stock last week.

“In the short term, it is plausible that investors may begin to suffer from AI fatigue or become more broadly concerned about index concentration,” said Neville Javeri, portfolio manager and head of the Empiric LT team. Equity at Allspring Global Investments.

Even with the crisis, Nvidia remains up more than 140% this year, making it the second-best performer among S&P 500 index constituents, behind Super Micro Computer Inc., another AI play favorite.

The stock suffered a roughly 20% decline earlier this year, although it quickly returned to all-time highs.

As investors have flocked to Nvidia due to extremely high demand for its chips used in AI processing, the scale of Nvidia’s rally – it also climbed about 240% over the course of 2023 – has highlighted concerns about its valuation. The stock trades at nearly 23 times estimated sales over the next 12 months, making it the most expensive stock in the S&P 500 by that measure. He nevertheless remains very popular on Wall Street. Nearly 90% of analysts tracked by Bloomberg recommend Buy, and the average analyst price target indicates an upside of about 10% from current levels.

“The momentum in Nvidia stocks and AI in general has been stunning,” said Charlie Ashley, portfolio manager at Catalyst Funds. “In terms of investment, I wouldn’t be contrarian at the moment.”

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