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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How Nvidia climbed to the top of the market
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.
“Super high-IQ revolutionaries” who are willing to work 80+ hours a week are being urged to join Elon Musk’s new cost-cutting department in Donald Trump’s incoming US government.
The X and Tesla owner will co-lead the Department Of Government Efficiency (DOGE) with former Republican presidential candidate Vivek Ramaswamy.
And in a post on X, the official DOGE account put out a call to arms for people to sign up and help “dismantle government bureaucracy”.
The post said: “We are very grateful to the thousands of Americans who have expressed interest in helping us at DOGE.
“We don’t need more part-time idea generators.
“We need super high-IQ small-government revolutionaries willing to work 80+ hours per week on unglamorous cost-cutting.
“If that’s you, DM this account with your CV. Elon & Vivek will review the top 1% of applicants.”
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Elon Musk speaking at an event held at Donald Trump’s Mar-a-Lago estate. Pic: AP Photo/Alex Brandon
In a reply to an interested party, Mr Musk suggested the lucky applicants would be working for free.
“Indeed, this will be tedious work, make lost of enemies & compensation is zero,” the world’s richest man wrote.
“What a great deal!”
When announcing the new department, President-elect Donald Trump said Mr Musk and Mr Ramaswamy “will pave the way for my administration to dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure federal agencies”.
Mr Musk has previously made clear his desire to see cuts to “government waste” and in a post on his X platform suggested he could axe as many as three-quarters of the more than 400 federal departments in the US, writing: “99 is enough.”
US
RFK Jr chosen as Donald Trump’s health secretary – as president-elect says he will do ‘unbelievable things’
Donald Trump has chosen vaccine sceptic Robert F Kennedy Jr as his new health secretary and said he will do “unbelievable things”.
The news was announced by Donald Trump Jr on X, before the president-elect confirmed the appointment just moments later.
Former Democrat RFK Jr, the nephew of former president John F Kennedy, had been running as an independent presidential candidate but dropped out of the race and endorsed Mr Trump in August.
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From August: Kennedy family criticises RFK Jr after Trump endorsement
In return for Mr Kennedy’s support during the election, president-elect Trump pledged to give him a “big role” – and RFK Jr’s preference for the health position was widely reported.
Mr Trump spoke on Thursday night at a gala, hosted at his Mar-a-Lago retreat in Florida, which included tech billionaire Elon Musk and actor Sylvester Stallone.
Directly addressing RFK Jr, who was in the audience, Mr Trump said: “We want you to come up with things… and ideas… and what you’ve been talking about for a long time. I think you’re going to do some unbelievable things. Nobody’s going to be able to do it like you.”
The health and human services (HHS) department includes the Food and Drug Administration, the Centers for Disease Control and Prevention, Medicare, Medicaid and the National Institutes of Health.
RFK Jr will “restore these Agencies to the traditions of Gold Standard Scientific Research, and beacons of Transparency, to end the Chronic Disease epidemic, and to Make America Great and Healthy Again,” the president-elect wrote on X.
Donald Trump and Robert F Kennedy Jr in October during the presidential campaign. Pic: Reuters
Mr Trump added: “For too long, Americans have been crushed by the industrial food complex and drug companies who have engaged in deception, misinformation, and disinformation when it comes to Public Health.
“The Safety and Health of all Americans is the most important role of any Administration.”
Mr Kennedy is a known vaccine sceptic who has repeated misinformation on multiple occasions, including the discredited theory that childhood immunisations cause autism.
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The RFK Jr-led health department will “play a big role in helping ensure that everybody will be protected from harmful chemicals, pollutants, pesticides, pharmaceutical products, and food additives that have contributed to the overwhelming Health Crisis in this Country,” the president-elect added.
Earlier, his son Donald Trump Jr was the first to confirm the appointment, writing on X: “Robert F Kennedy Jr will be The Secretary of Health and Human Services! Promises Made Promises Kept.”
Read more:
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When Trump met Obama and Biden
RFK Jr’s position will need to be confirmed with a Senate vote – but even with the chamber under Republican control, his appointment may face opposition because of his views on health issues.
Before Mr Trump announced his choice, Mr Kennedy had already claimed the new president would push to remove fluoride from drinking water on his first day in office. The addition of the compound has been cited as helping to improve dental health.
The department RKF Jr is hoping to oversee has more than 80,000 employees across the United States.
Donald Trump has picked fiery Florida congressman Matt Gaetz to be his attorney general – a man who was under investigation over sex trafficking just days ago.
Democrats have described the MAGA loyalist as “a gonzo agent of chaos” and his appointment a “red alert moment for our democracy”, while some Republican senators have also raised doubts about his suitability for the role.
It comes as Mr Trump won control of the House of Representatives, giving him full control of the government, and continues to fill out his top team.
Mr Gaetz, 42, has been under investigation by the House of Representatives’ ethics committee over allegations he was part of a scheme that led to the sex trafficking of a 17-year-old girl.
But after he resigned from Congress on Wednesday following being named as Mr Trump’s pick for attorney general, that probe has ended – without the publication of any findings.
Despite the cloud over his character – Mr Gaetz denies all allegations – he has repeatedly shown his loyalty to the president-elect, attending his hush money trial in Manhattan and vociferously calling out prosecutors.
The MAGA firebrand in the past has spread the conspiracy theory that the January 6 riots were actually orchestrated by the left-leaning group Antifa.
If he’s going to lead the Department of Justice, the Florida politician needs to be confirmed by a Senate vote like other cabinet positions. That’s where it could get difficult for him.
The nomination is seen by some as a reward for his loyalty to Donald Trump. Pic: AP
What have Republicans said?
“I don’t think it’s a serious nomination for the attorney general,” Republican senator Lisa Murkowski said. “This one was not on my bingo card.”
Senator Susan Collins said she was “shocked” by the pick and said there would be “an awful lot of questions being asked in this case”.
Both Ms Murkowski and Ms Collins have been vocal Trump critics (the latter vowed to write fellow Republican Nikki Haley’s name on her ballot) and will be under the spotlight next year as their party retakes control of the Senate.
“I think it’s a little bit of a test,” said Republican senator Kevin Cramer.
He said he sees Mr Gaetz as a disruptive force in the House and has concerns about the “serious allegations” against him – but stopped short of saying he would not vote for him.
“It will take a lot of political capital to get him across,” he added.
Mr Gaetz will need to be confirmed by a Senate vote. Pic: AP
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“I’ve known Matt for a very long time, we’re friends,” said Florida senator Marco Rubio, who was nominated for secretary of state on Wednesday. “I think he would do a very good job for the president.”
Some Republican senators were reluctant to publicly criticise the incoming president’s pick to lead the justice department but did not endorse him either.
Senator John Cornyn, a member of the judiciary panel, said he did not know Mr Gaetz “other than his public persona”, and said he will not “prejudge any of these” nominations.
“I’ve got nothing for you,” said senator Katie Britt when asked by reporters. “We’ll see,” said senator Ron Johnson, when asked if he is voting for Mr Gaetz.
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Difference between Trump meeting Obama and Biden
What have Democrats said?
Unsurprisingly, Democrats in Congress have been less restrained with their reactions to Mr Gaetz’s nomination.
Veteran senator Chris Murphy declared the announcement to be “a red alert moment for our democracy”.
Representative Jim Himes meanwhile, who sits on the House Intelligence Committee, told CNN the role of attorney general requires “care, prudency, a deep respect for the rule of law… Matt Gaetz is the opposite of all of those things, he is a gonzo agent of chaos”.
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Senator Richard Blumenthal, who sits on the Senate’s judiciary panel, said the nomination was the “first test of whether Republicans are willing to stand up to Donald Trump and go with conscience and conviction as opposed to just politics”.
New Mexico senator Martin Heinrich was even more blunt, posting on X: “People voted for cheaper eggs, not whatever the f@#€ this is.”
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