Nvidia enters correction territory as crisis erases $400 billion

(Bloomberg) — Shares of Nvidia Corp. fell on Monday, as the AI-focused chipmaker entered correction territory as it extended a recent sharp sell-off.

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Shares are down 4.8% and are on track for their third consecutive negative session. It fell 12% during the three-day decline, surpassing the 10% threshold that represents a correction. The drop weighed on chipmakers, with the Philadelphia Stock Exchange Semiconductor Index falling as much as 2.2% on Monday. Broadcom Inc., Taiwan Semiconductor Manufacturing Co. and Qualcomm Inc. fell at least 2%.

The three-day drop wiped more than $400 billion from Nvidia’s market capitalization, putting it back below the $3 trillion threshold, as well as below the size of Microsoft Corp. Nvidia briefly claimed the title of the world’s biggest stock last week.

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

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

Shares fell about 20% earlier this year, although they quickly returned to all-time highs.

While investors have flocked to Nvidia due to high demand for its chips used in AI processing, the scale of Nvidia’s recovery – it also soared by around 240% through 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 in the S&P 500 by this measure. Still, he remains well-liked on Wall Street. Nearly 90% of analysts tracked by Bloomberg recommend buying, and the average analyst price target points to an upside of about 10% from current levels.

“The momentum in Nvidia stocks and AI in general has been surprising,” said Charlie Ashley, portfolio manager at Catalyst Funds. “In terms of investment, I wouldn’t be against it at this point.”

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