Nvidia, the chipmaker that has experienced a nine-fold increase in its share value since the end of 2022, recently surpassed Microsoft as the world’s most valuable company with a stock market valuation of $3.34 trillion (£2.63 billion). However, in the past week, the company’s shares have fallen by 13%, resulting in a decline of over $500 billion (£394 billion) from its market valuation.
This decline can be attributed to a number of factors, including profit-taking by investors who had previously jumped on board the stock’s impressive run. Another contributing factor is the movement of speculative money to other stocks after a report was published in the Wall Street Journal about talks between Meta Platforms and Apple. This resulted in a wider sell-off of Nvidia’s shares, but did not affect the overall stock market.
Additionally, the recent sale of shares by Nvidia’s founder and chief executive, Jensen Huang, as well as other directors, has raised concerns among investors. While selling by directors is not always indicative of a company’s prospects, it is seen as a negative signal by many.
Moreover, some investors have been evaluating Nvidia using traditional investment measures, such as the price/earnings (P/E) ratio. With a P/E ratio of 45, Nvidia’s shares were seen as overvalued compared to its peers, whose P/E ratios were significantly lower. This has raised questions about whether the company’s earnings growth can justify its high valuation.
Some investment analysts have compared Nvidia’s current situation to that of Cisco Systems during the dot-com bubble in the early 2000s. The comparison has led to a decline in sentiment towards Nvidia, with some suggesting that the company’s shares may be overvalued.
While Nvidia is a leader in the field of artificial intelligence (AI), it is still a nascent technology and it is impossible to predict which companies will emerge as the biggest winners in the long run. As such, investors should exercise caution and not make hasty investment decisions based on the current hype around AI.