Introduction: Over $500bn wiped off Nvidia after shares slide
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Nvidia, one of the hottest shares on the market this year, has dropped into a correction – leaving traders worrying that the air is coming out of the AI stock boom.
After three days of chunky falls, Nvidia’s stock has now dropped by 13% since – briefly – becoming the world’s largest company a week ago.
Yesterday it tumbled by 6.7% on Wall Street, taking its losses over the last few days to over $500bn(!).
That’s the biggest three-day value loss for any company in history, Bloomberg reports.
Nvidia’s falls pulled the wider market down too, as Jim Reid of Deutsche Bank explained this morning:
Nvidia has been driving markets again over the last 24 hours, as its share price came down another -6.68%, building on its -4.03% decline over the previous week and -16.1% from the intra-day high on Thursday.
In turn, that held down US equity returns more broadly, as the losses for Nvidia pushed the NASDAQ (-1.09%) and the S&P 500 (-0.31%) into negative territory for the day.
Nvidia’s share price falls follow a stellar run – the stock is still up almost 140% in 2024, and has almost tripled over the last 12 months.
The rally had been driven by excitement about artificial intelligence systems, which are powered by Nvidia’s high-end chips.
But some analysts had been concerned that the AI boom had run too high, and was turning into a bubble.
David Morrison, senior market analyst at Trade Nation, says there are signs of profit taking by investors who bought shares in “Market darling Nvidia” on the way up:
Some profit-taking seems entirely reasonable given NVIDIA’s meteoric rise. The stock was up over 180% this year alone. But if it continues to lose ground, then there’s a danger of contagion, with selling spreading to other big tech names. If that were the case, then the market could be in for a deeper and more protracted pull-back.
Yet there are few indications that investors are even thinking along these lines.
Nvidia has been posting very impressive financial results this year. In the last quarter, revenues surged by 262% year-on-year, with earnings per share up a staggering 629%.
But the enthusiasm for Nvidia’s stock this year had pushed its valuation to levels that implied it would keep beating expectations with stellar revenue and earnings.
Another factor weighing on Nvidia is that CEO Jensen Huang has been selling stock this month, through a trading plan. That has focused attention on whether the stock was somewhat overvaued.
To all $NVDA hodlers: Jensen Huang after his most recent stock sale (about $90 million) still owns more than 800 million -shares-. That’s little over $95 -B-illion US Dollars.
— Alex M Harbison (@alexmharbison) June 24, 2024
Another point: we’ve approaching the end of the financial quarter – so some investors will be rebalancing portfolios and cashing in profits.
Kyle Rodda, senior financial market analyst at capital.com, explains:
It’s difficult to extrapolate what can be attributed to technical factors and what’s fundamentals in the markets, with price action apparently driven by end-of-month and end-of-quarter positioning.
A sell-down in tech, despite little shift in rates expectations and the outlook for earnings, may signal a trimming by investors of the quarter’s big winners. Nvidia epitomises the dynamic, down 12% in three days and little-to-news.
The agenda
-
1.30pm BST: Chicago Fed National Activity Index for May
-
1.30pm BST: Canadian inflation report for May
-
2pm BST: US house price index for April
-
3pm BST: US consumer confidence report for June
Key events
The drop in chipmakers such as Nvidia may show that a ‘rotation’ has begun in the US stock markets, with money moving away from the mega cap technology stocks which have been a major driver of gains this year.
Richard Hunter, head of markets at interactive investor, says:
The stellar rise of tech and AI-related stocks in particular inevitably gets to the stage where investors pause for breath and recalculate valuation levels.
Over recent days the more traditional Dow Jones index has been the subject of buying interest at the expense of the more tech exposed S&P500 and Nasdaq indices, as investors seek alternatives such as financials and utilities, and more broadly in value stocks which have been left behind by the tech surge.
After two weaker trading sessions, market darling Nvidia fell a further 6.7% while other chip stocks such as Broadcom and Qualcomm fell between 3% and 6%.
While it is far too early to call an end to the current run, such minor corrections are generally seen as healthy, while the expected downward direction of travel for interest rates provides a comforting backdrop as companies more broadly are comfortable to borrow to grow their businesses.
The drop in Nvidia’s share price in the last three sessions will be painful for investors who had bought call options in the chipmaker.
Call options give the right (but not the obligation) to buy a stock in future at a fixed price.
There had been booming interest in call options in Nvidia, which paid out if its stock kept rising – a profitable trade, until the last few trading sessions.
“Net call volumes in [mega-cap growth] & Tech surged this week to record highs, going above even pandemic boom levels, and completely disconnecting from those in the rest of the market” –DB pic.twitter.com/E45DXrNobL
— Gunjan Banerji (@GunjanJS) June 21, 2024
The biggest profits were to be made in buying ‘out of the money’ Nvidia call options, which would only pay off it its stock climbed sharply higher.
Arguably those call options helped to drive up stocks too, as traders who had written the option could protect themselves by buying the underlying share, just in case they rose above the ‘strike price’ (when the option is then ‘in the money’)
BTIG’s Jonathan Krinsky noted Nvidia $nvda traded at around 100% above its 200-day moving average last week, marking the largest gap for a leading company since 1990.
Cisco Systems approached this metric near the peak of the dot-com bubble, as reported by BTIG. pic.twitter.com/9kEwOdx2Yp
— Ciril Hajdinjak (@cirhaj) June 24, 2024
It’s important to remember that Nvidia is an extremely volatile stock.
Kathleen Brooks, research director at XTB, explains:
The chart below shows Nvidia 1-month call option volatility and the Vix (green line). The calm Vix index hides the fact that the second-best performer on the index is extremely volatile. As we have said before, Nvidia does experience periods of extreme volatility, both to the upside and to the downside. If you own this stock, you need to make peace with that.
But the other issue is that Nvidia’s stock was looking a little pricy.
Brooks writes:
Not even the stock split earlier this month has dampened down Nvidia’s stock price volatility. Analysts have upgraded their forecasts for their Q2 earnings in the last 4 weeks, however, with a 12-month forward P/E ratio of 42, higher than the average for the S&P 500 of 25.6, there is no denying that Nvidia is starting to look a bit rich.
While we don’t deny that Nvidia is delivering on the earnings front: it is expected to deliver $28bn of revenue in Q3, and operating profits of $18.5bn, investors must pay up for these earnings. Thus, there is less room for Nvidia to slip up when it delivers its earnings reports, which may worry some investors. Tech is a multiyear theme, especially Artificial Intelligence, thus we do not expect Nvidia’s stock price to fall off a cliff, but a pullback is to be expected. Added to this, it is normal for investors to pause and consider if a stock is looking overvalued, even a stock like Nvidia.
Bloomberg: Nvidia’s 13% stock rout has traders scouring charts for support
After a three-day slide, financial traders are wondering how much further Nvidia’s shares may fall.
Bloomberg reports that traders are turning to technical analysis for clues on where the bottom may be.
Yesterday’s 6.7% drop took Nvidia’s share price down to $118, having briefly hit an alltime high of $140 last week.
Buff Dormeier, chief technical analyst at Kingsview Partners, sees short-term support around the $115 level, with the next significant level at $100.
These support levels are calculated by using Fibonacci retracement levels, using stock price data to work out where a stock might have support on the way down, or face resistance on the way up.
Next potential entry point for Nvidia is near. Potential support level around the $115.8 level (fibo retracement from April low to recent high) $NVDA
3/3 pic.twitter.com/ZMIQ3qT8S7
— David Ingles (@DavidInglesTV) June 25, 2024
Ari Wald, head of technical analysis at Oppenheimer, points out that Nvidia’s longer-term trend remains strong – the stock is still trading well above its 50-day moving average around $101 and 100-day moving average at $92.
Introduction: Over $500bn wiped off Nvidia after shares slide
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Nvidia, one of the hottest shares on the market this year, has dropped into a correction – leaving traders worrying that the air is coming out of the AI stock boom.
After three days of chunky falls, Nvidia’s stock has now dropped by 13% since – briefly – becoming the world’s largest company a week ago.
Yesterday it tumbled by 6.7% on Wall Street, taking its losses over the last few days to over $500bn(!).
That’s the biggest three-day value loss for any company in history, Bloomberg reports.
Nvidia’s falls pulled the wider market down too, as Jim Reid of Deutsche Bank explained this morning:
Nvidia has been driving markets again over the last 24 hours, as its share price came down another -6.68%, building on its -4.03% decline over the previous week and -16.1% from the intra-day high on Thursday.
In turn, that held down US equity returns more broadly, as the losses for Nvidia pushed the NASDAQ (-1.09%) and the S&P 500 (-0.31%) into negative territory for the day.
Nvidia’s share price falls follow a stellar run – the stock is still up almost 140% in 2024, and has almost tripled over the last 12 months.
The rally had been driven by excitement about artificial intelligence systems, which are powered by Nvidia’s high-end chips.
But some analysts had been concerned that the AI boom had run too high, and was turning into a bubble.
David Morrison, senior market analyst at Trade Nation, says there are signs of profit taking by investors who bought shares in “Market darling Nvidia” on the way up:
Some profit-taking seems entirely reasonable given NVIDIA’s meteoric rise. The stock was up over 180% this year alone. But if it continues to lose ground, then there’s a danger of contagion, with selling spreading to other big tech names. If that were the case, then the market could be in for a deeper and more protracted pull-back.
Yet there are few indications that investors are even thinking along these lines.
Nvidia has been posting very impressive financial results this year. In the last quarter, revenues surged by 262% year-on-year, with earnings per share up a staggering 629%.
But the enthusiasm for Nvidia’s stock this year had pushed its valuation to levels that implied it would keep beating expectations with stellar revenue and earnings.
Another factor weighing on Nvidia is that CEO Jensen Huang has been selling stock this month, through a trading plan. That has focused attention on whether the stock was somewhat overvaued.
To all $NVDA hodlers: Jensen Huang after his most recent stock sale (about $90 million) still owns more than 800 million -shares-. That’s little over $95 -B-illion US Dollars.
— Alex M Harbison (@alexmharbison) June 24, 2024
Another point: we’ve approaching the end of the financial quarter – so some investors will be rebalancing portfolios and cashing in profits.
Kyle Rodda, senior financial market analyst at capital.com, explains:
It’s difficult to extrapolate what can be attributed to technical factors and what’s fundamentals in the markets, with price action apparently driven by end-of-month and end-of-quarter positioning.
A sell-down in tech, despite little shift in rates expectations and the outlook for earnings, may signal a trimming by investors of the quarter’s big winners. Nvidia epitomises the dynamic, down 12% in three days and little-to-news.
The agenda
-
1.30pm BST: Chicago Fed National Activity Index for May
-
1.30pm BST: Canadian inflation report for May
-
2pm BST: US house price index for April
-
3pm BST: US consumer confidence report for June
