Nvidia share price plunge has one major explanation
Just one week ago, Nvidia became the world’s most valuable company.
The chipmaker – whose shares had risen nine-fold since the end of 2022 – overtook Microsoft as its stock market valuation reached $3.34trn (£2.63bn).
Since then, the shares have fallen by 13%, declining in each of the last three trading sessions.
That has been enough to clip more than $500bn (£394bn) from Nvidia’s stock market valuation reached when, last Thursday, the shares hit an all-time intra-day high of $140.76 (£110.94) each (taking into account the 10-for-one share split completed earlier this month).
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To put that into context, Exxon Mobil – the 14th biggest company in the S&P 500 index and itself one of only a dozen companies ever to achieve the status of the world’s most valuable company – has a stock market valuation of $511bn.
So what is going on?
There are a number of factors at play.
The first is profit-taking. Nvidia shares, prior to last Thursday, had enjoyed a fantastic run and had attracted a lot of hot money from so-called “momentum buyers” who see a stock moving higher and jump on board to profit from the ride.
It was natural for such buyers to lock in profits by selling.
Added to that is that speculative money has moved on. A report published over the weekend in the Wall Street Journal that Meta Platforms, the parent of Facebook, has held talks with Apple about integrating Meta’s generative AI model into the recently unveiled Apple Intelligence system sent shares in both higher as profits from Nvidia’s recent strong run were recycled.
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Last week: Nvidia overtakes Microsoft
That money has not left the market – it has simply been redeployed from Nvidia to other stocks, not least Meta and Apple, but also elsewhere.
That can be shown by the fact that the sell-off in Nvidia, while also dragging down peers such as Broadcom, Taiwan Semiconductor, and Super Micro Computer (a server maker which is a heavy buyer of Nvidia’s chips), did not lead to a wider sell-off.
The Dow Jones, admittedly not as good a barometer of the US stock market as the S&P 500, hit its highest level for a month on Monday even as the S&P 500 and Nasdaq, both of which have a heavier weighting in Nvidia, were falling.
Also contributing to the sell-off was the revelation – via a filing to the main US financial regulator, the Securities & Exchange Commission – that Jensen Huang, Nvidia’s founder and chief executive, has taken advantage of the recent rise in the share price to reduce his holding.
Mr Huang, who founded Nvidia in 1993, sold just under $95m (£74.9m) worth of shares between Thursday 13 June and Friday 21 June. Nor is Mr Huang – who still owns more than 866 million shares in Nvidia worth $102.3bn (£80.3bn) at Monday evening’s closing price – the only director to have been selling recently.
Nvidia CEO Jensen Huang is among directors to have recently sold shares
Mark Stevens, a veteran venture capitalist who has been on the Nvidia board since 2008, has offloaded $28m (£22m) worth of shares this month while Tench Coxe, another VC who was one of Mr Huang’s earliest backers and who has been on the board since the start, has sold $119.5m (£94.1m) worth.
Selling by directors is not always a reliable guide to a company’s prospects. Sometimes it reflects personal factors, such as a divorce or estate planning, rather than indicating what a director thinks of a company’s prospects. Rightly or wrongly, though, it is usually taken as a negative signal.
Perhaps the most significant factor in the sell-off, though, is that some investors have been looking at Nvidia through traditional investment yardsticks.
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The main one of these is the price/earnings (P/E) ratio. The higher the P/E ratio is, the more expensively a stock is valued.
Last week, after its latest gains, shares of Nvidia were changing hands at 45 times expected earnings.
To put that in context, the forward P/E of the S&P 500 is 22 times and the Nasdaq only slightly more. Put another way, investors were ascribing more than twice the value to Nvidia’s future earnings as they were to those of its peers.
Moreover, as the influential investment magazine Barron’s pointed out at the weekend, Nvidia was being valued at some 20 times its expected sales for the year to the end of January 2026 – a racy valuation, to say the least.
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Stocks with those kinds of valuation have to justify it with spectacular earnings growth.
Yet, as Barron’s columnist Eric Savitz pointed out, Nvidia’s quarter-on-quarter earnings growth has, over the last four quarters, slowed from 88% to 34% to 22% to 18%. Now, quarter-on-quarter earnings growth of 18% is still pretty spectacular. But it does not quite justify a price/earnings multiple that has gone from 25 to 45 over the last year.
Pointing out that from 1976 to 2020, stocks trading at P/E rations of over 15 tended to underperform, Mr Savitz added: “I know what you’re thinking. It’s different this time. This is AI! And sure, maybe AI really is the most important thing to happen in technology since cloud computing, or the internet, or mobile phones, or even the personal computer. But the numbers worry me.
“Nvidia’s market value is now nearly five times the industry estimate for next year’s global chip sales-yes, the total from every company worldwide. Microsoft has seven times the number of employees Nvidia does, and twice the sales. Apple has five times the staff, and triple the sales volume. Nonetheless, this past week, Nvidia’s market cap vaulted past them both.”
Mr Savitz was not the only investment columnist suggesting that, perhaps, Nvidia’s shares might be over-valued.
Some of Monday’s sell-off was also fuelled by the highly influential ‘Heard on the Street’ column in the Wall Street Journal which, at the weekend, invited readers to cast their minds back to the dot-com bubble at the beginning of the century and, in particular, to the gyrations seen at that time in shares of Cisco Systems.
Cisco, the Journal reminded its readers, was favoured along with stocks such as IBM, Lucent and Intel – companies whose hardware were at the forefront of connecting households and businesses to the internet. By the end of 1999, it had become the world’s most valuable company.
The comparison with Cisco has undoubtedly dented sentiment towards Nvidia in some quarters.
Pointing out that today Cisco is now valued at 40% less than it was back then, the Journal highlighted that, at its peak in March 2000, Cisco shares were valued at 131 times forward earnings despite a less impressive financial performance than that recently shown by Nvidia.
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Stressing that Nvidia was not is frothily valued as Cisco had been, the column added: “That doesn’t necessarily make Nvidia’s shares safe at their current level, though.
“The stock has seen a big influx of individual investors since the company’s latest financial results last month. Daily retail inflow has averaged nearly $141m since the earnings compared with a daily average of about $39m during the month prior, according to Vanda Research.
“Sell-side analysts are also getting rather exuberant. Several have pushed up their price targets since the stock’s 10 June split. And at least four of those targets are now at $160 and higher, which would put Nvidia’s market capitalization near $4trn at its current share count.
“Nvidia may be the top gun of AI, but investors should be careful not to write checks the stock can’t cash.”
Quite so.
AI is still a nascent technology and it is impossible to know, from here, who may be the greatest winners from it over time.
Just as investors back in 1999, trying to predict who would be the world’s biggest winners from widespread adoption of the internet, could not have known.
Donald Trump has filed a lawsuit against Rupert Murdoch, two Wall Street Journal reporters and the publication’s owner, News Corp.
The US president has accused the named individuals of defamation, claiming they acted with malicious intent and caused him overwhelming financial and reputational harm.
The lawsuit, which was filed in Miami, seeks at least $10bn (£7.5bn) in damages.
In a post on Truth Social, Mr Trump called the lawsuit “historic legal action” which was filed on behalf of himself and all Americans who he said will “no longer tolerate the abusive wrongdoings of the Fake News Media”.
“I hope Rupert and his ‘friends’ are looking forward to the many hours of depositions and testimonies they will have to provide in this case,” he wrote.
It comes after Mr Trump claimed that a letter he allegedly wrote to paedophile Jeffrey Epstein was “fake” and said he would sue the “ass off” Rupert Murdoch, who owns the Wall Street Journal (WSJ), which first published the story.
The publication had said Mr Trump wrote the letter as part of a collection Epstein’s former girlfriend, Ghislaine Maxwell, planned to give him as a 50th birthday present in 2003.
It claimed the message, allegedly from Mr Trump, featured several lines of typewritten text, concluding with: “May every day be another wonderful secret.”
The text was framed by what appeared to be a hand-drawn outline of a naked woman, the WSJ claimed. The letter is also said to have featured the signature “Donald”.
Mr Trump immediately denied writing the letter when the WSJ report was published on Thursday night.
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“The Wall Street Journal printed a FAKE letter, supposedly to Epstein,” he wrote on Truth Social.
“These are not my words, not the way I talk. Also, I don’t draw pictures. I told Rupert Murdoch it was a Scam, that he shouldn’t print this Fake Story. But he did, and now I’m going to sue his ass off, and that of his third rate newspaper.”
Mr Trump ignored questions about Epstein as he signed a cryptocurrency bill at the White House earlier on Friday.
The president’s lawsuit comes as the US government filed a motion to unseal grand jury transcripts related to Epstein, who took his own life while awaiting trial in 2019.
In a Manhattan federal court filing, the Department of Justice said the criminal cases against Epstein and Maxwell are a matter of public interest, justifying the release of associated grand jury transcripts.
Earlier on Friday, Mr Trump said attorney general Pam Bondi had been asked to release the transcripts because of “the ridiculous amount of publicity given to Jeffrey Epstein”.
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The justice department previously said it had around 200 documents relating to Epstein and that the FBI had thousands more.
It is unknown how much of this is grand jury testimony, which is typically kept secret under US law.
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The president has faced increased scrutiny over his alleged friendship with Epstein since his administration’s U-turn on the so-called ‘Epstein files’.
Mr Trump pledged to release files on Epstein during his presidential campaign, as his MAGA movement accused the Biden administration of suppressing the extent of Epstein’s paedophilia, predatory behaviour and his so-called “client list” – thought to contain names of the rich and famous who conspired with him in his child sex trafficking operation.
But after a review of the evidence the US government has, the Justice Department recently determined that no “further disclosure would be appropriate or warranted”.
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US secretary of state Marco Rubio said the prisoners, who had been held in the South American country, were “on their way to freedom”.
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US
Trump denies claim he wrote birthday letter to Jeffrey Epstein – and says he has ordered release of more case files
Donald Trump has called an alleged letter he wrote to paedophile Jeffrey Epstein “fake” and said he will sue the “ass off” Rupert Murdoch, who owns the paper that first published the claim.
In multiple posts on Truth Social, the US president accused The Wall Street Journal (WSJ) of fabricating the letter that it claimed was written by Mr Trump as part of a collection of letters addressed to Epstein that his former girlfriend Ghislaine Maxwell planned to give him as a birthday present in 2003.
According to documents seen by the WSJ, Mr Trump’s letter featured several lines of typewritten text framed by what appeared to be a hand-drawn outline of a naked woman.
The paper said the letter concludes “Happy Birthday – and may every day be another wonderful secret”, and featured the signature “Donald”, allegedly drawn across the woman’s waist, meant to mimic the appearance of pubic hair.
Epstein took his own life in prison in 2019. Pic: AP
Responding to the WSJ’s claims, Mr Trump wrote: “The Wall Street Journal printed a FAKE letter, supposedly to Epstein. These are not my words, not the way I talk. Also, I don’t draw pictures.
“I told Rupert Murdoch it was a Scam, that he shouldn’t print this Fake Story. But he did, and now I’m going to sue his ass off, and that of his third rate newspaper. Thank you for your attention to this matter! DJT.”
He said earlier he would also sue the WSJ and News Corp, which Mr Murdoch owns. The WSJ is published by News Corp subsidiary company, Dow Jones & Co.
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From 16 July: Trump: Epstein case is ‘a boring story’
The Justice Department has not responded to the WSJ and the FBI declined to comment.
In a separate post, Mr Trump said he has asked the attorney general, Pam Bondi, to release “any and all pertinent grand jury testimony” in the case of the paedophile financier who was found dead in his Manhattan cell in August 2019, shortly after he was arrested on sex trafficking charges.
The release of any documents, Mr Trump said, would be subject to approval by a court.
The justice department has previously said it had around 200 documents relating to Epstein and that the FBI had thousands more. It is unknown how much of this is grand jury testimony – which is typically kept secret under US law.
Ms Bondi responded to the president on X, writing: “President Trump-we are ready to move the court tomorrow to unseal the grand jury transcripts.”
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Elon Musk, who claimed last month that Mr Trump appears in the Epstein files, was surprisingly among the first to come to the president’s defence over the WSJ claims.
“It really doesn’t sound like something Trump would say tbh,” the tech billionaire wrote on X, before going on to ask where the evidence against Epstein allegedly held by the FBI had gone.
The Trump administration has come under criticism after the president appeared to U-turn on his own promise to release more information about the Epstein case publicly.
In the run-up to the US election last year, Mr Trump drew on rumours and conspiracy theories that appeared to accuse the Biden administration of suppressing the extent of Epstein’s paedophilia, predatory behaviour and his so-called “client list” – thought to contain names of the rich and famous who conspired with him in a child sex trafficking operation.
Ms Bondi fuelled these rumours in February by telling Fox News that the alleged Epstein client list was “sitting on my desk right now to review”.
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In the same month, the justice department released some government documents regarding the case, but there were no new revelations.
After a months-long review of additional evidence, the department earlier this month released a video meant to prove that Epstein killed himself, but said no other files related to the case would be made public.
The decision was criticised by many in Mr Trump’s Make America Great Again (MAGA) movement, who Mr Trump later called “weaklings”.
Sky News has contacted the White House for further comment.
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