Nvidia share price plunge has one major explanation

Published

12 months ago

June 26, 2024

admin

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).

Post Office Horizon IT Inquiry – watch live

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.

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.

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.

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.

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.

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.

US

Trump’s Iran remarks let him still play ‘good cop’ to Netanyahu’s ‘bad cop’

Published

8 hours ago

June 15, 2025

admin

Trump's Iran remarks let him still play 'good cop' to Netanyahu's 'bad cop'

Reading between the lines of President Trump’s social media posts is an art, not a science.

But whether by intention or not, there is always insight in his posts. His Truth Social words reacting to the Israeli attack on Iran are intentionally ambiguous.

When was he told by Israel that they would strike Iran? Did he give them a green light, or was it more amber?

Israel-Iran live: Missile from Iran and Yemen ‘hitting Israel’

Was his insistence, as recently as 48 hours ago, that a strike would “blow” the chances of a deal with Iran actually just a ruse to afford Israel the element of surprise? That’s what the Israelis are claiming.

Clearly, President Trump does not want to give the impression that his ‘don’t strike’ advice was ignored by Netanyahu.

His social posts are filled with enough ambiguity to allow him to maintain his good cop stance alongside Netanyahu, the bad cop: “I gave Iran chance after chance to make a deal. I told them, in the strongest of words, to ‘just do it’…”

Trump’s ‘art of the deal’, whether it be in real estate or nuclear weapon negotiations, requires unpredictability and ambiguity.

Both of those, as it happens, are useful to hide ineptitude too. The line between diplomatic masterstroke and disastrous diplomacy is thin.

The president is claiming that the Israeli attacks make a deal more, not less, likely because of the pressure Iran will now be under.

Maybe, but many regional watchers are very unconvinced.

👉Listen to The World with Richard Engel and Yalda Hakim on your podcast app👈

An alternative path to negotiations for Iran would be to go fully down the North Korea route, comforted in the knowledge that China – as a big Iranian oil customer – and Russia – as a weapons customer – will be on side.

Trump may think that the pressure of bombardment will force Iran to heel. But the other pressure the Iranian supreme leader is under is the pressure of survival.

Self-preservation necessitates the Iranian response that we’re now seeing before any prospect of renewed negotiations can come.

The Israelis and the Americans are calculating that Iran and its proxies are now sufficiently degraded, and so the response will be limp and containable.

They might be right in terms of conventional attacks, but asymmetrical operations are another fear – against Israeli targets or more broadly, softer Western targets in the region or beyond.

Step back from the chaos of the past 24 hours. The broader picture here is regime change.

Netanyahu said as much in his Friday speech, calling for an internal uprising. He ignored history – which suggests people tend to rally round their flag – but more than that, that foreign air strikes alone don’t work.

Look at Libya in 1986, Iraq in 1991, or Yugoslavia in 1999.

Netanyahu wants to go further. Will he take out the supreme leader? Trump does not want another full-scale conflict in the Middle East. Of all the things he is accused of being, a hawkish warmonger he is not.

But there are plenty of politicians on Capitol Hill – on both sides of the divide – who support regime change in Iran.

I was at an event in Congress in December organised by Iranian exiled opposition leaders. I was struck by the cross-party support for regime change in one form or another.

Israel this weekend announced that its military had achieved total air superiority from western Iran to the capital Tehran. That’s remarkable.

Could Trump be persuaded to pursue regime change? Peace, eventually, through strength? His motto adapted.

We are at yet another unsettlingly tense moment for the region.

US

Minnesota: US politician shot dead and another wounded – as suspect named

Published

11 hours ago

June 15, 2025

admin

Minnesota: US politician shot dead and another wounded - as suspect named

A manhunt is under way after a US politician and her husband were shot dead in their home in a “politically motivated assassination” – and another politician and his wife were also shot.

Minnesota state representative Melissa Hortman and her husband were killed at their home, Tim Walz, the governor of Minnesota, confirmed.

State senator John Hoffman and his wife were also shot in their home but are expected to survive. The senator, according to officials, is in a stable condition after emergency surgery.

Authorities have confirmed that the suspect they are looking for is 57-year-old Vance Boelter – who, in a press conference, was described as a 6ft 1in white male, with brown hair and brown eyes.

Members of the public have been urged not to approach him as he may be armed.

The suspect was reportedly posing as a police officer, and officials said the alleged attacker escaped after an exchange of gunfire.

Both politicians are members of the Minnesota Democratic-Farmer-Labor Party.

US President Donald Trump, in a statement, said: “I have been briefed on the terrible shooting that took place in Minnesota, which appears to be a targeted attack against State Lawmakers.

“Our Attorney General, Pam Bondi, and the FBI, are investigating the situation, and they will be prosecuting anyone involved to the fullest extent of the law.

“Such horrific violence will not be tolerated in the United States of America.”

Authorities have urged residents of the Champlin and Brooklyn Park areas to stay in their homes.

In an earlier Facebook post, Mr Walz said: “I’ve been briefed this morning on an ongoing situation involving targeted shootings in Champlin and Brooklyn Park.

“The Minnesota Department of Public Safety and local law enforcement are on the scene. We will share more information soon.”

At a subsequent news conference, Mr Walz said: “We must all, in Minnesota and across the country, stand against all forms of political violence.

“Those responsible for this will be held accountable.”

He has also urged those in Minnesota not to attend political rallies until the suspect is caught.

Police evacuated the Texas State Capitol and grounds in Austin ahead of an anti-Trump protest on Saturday – citing a credible threat to politicians.

Post-mortem examinations will be conducted to determine the extent of their injuries.

However, it is clear that both Ms Hortman and her spouse died from gunshot wounds, Drew Evans, superintendent of the Bureau of Criminal Apprehension, said.

Ms Hortman, a mother of two, was first elected in 2004 – and was the top house Democratic leader in the state legislature. She also served as speaker of the Minnesota House of Representatives.

Mr Hoffman, also a Democrat, was first elected in 2012 – and ran a consulting firm called Hoffman Strategic Advisors.

Hakeem Jeffries, House Democratic leader, has described the shootings as “deeply disturbing” on X, adding that “violence is never acceptable”, and that he is “praying hard” for the victims.

Former Arizona representative, Gabby Giffords, described her friend Ms Hortman as a “true public servant”, who “dedicated her life building a better, safer Minnesota”.

Nancy Pelosi, former speaker of the US House of Representatives, said she was “heartbroken” by the news.

She added: “Unfortunately, we know the tragedy of when political violence hits home very well.

“All of us must remember that it’s not only the act of violence, but also the reaction to it, that can normalise it. This climate of politically-motivated violence must end.”

In a tribute, Democratic National Committee chair Ken Martin said: “Melissa, Mark, John, and Yvette – these are not just names, and this is not just politics.

“These are people. They’re longtime friends to me and Jenn and so many others in Minnesota. They have children, loved ones, neighbors, and friends.”

Mr Martin added: “Today, we recommit ourselves to fight harder for the values that Melissa and Mark embodied – building a kinder, more just, and loving world. If this murderer thinks we will be silenced, he’s wrong.”

US

Trump and Putin agree Iran-Israel conflict ‘should end’ in hour-long phone call

Published

11 hours ago

June 15, 2025

admin

Trump and Putin agree Iran-Israel conflict 'should end' in hour-long phone call

US President Donald Trump has revealed details of a one-hour phone call with his Russian counterpart, in which they agreed the conflict between Israel and Iran should end.

Posting on his Truth Social platform, Mr Trump added that he told Vladimir Putin that “his war [in Ukraine] should also end”.

Iran has retaliated following Israel’s attack on its nuclear sites on Friday – which killed senior army officers and nuclear scientists.

Israel-Iran latest: Follow live updates

The Iranian response has resulted in at least three people killed and dozens of injuries in Israel, according to medics. Iranian state TV, meanwhile, has reported that 20 children are among the 60 killed in a strike on a Tehran neighbourhood on Saturday.

Iranian missiles were seen entering Israeli airspace on Saturday evening.

Meanwhile, RAF jets and military assets are being sent to the Middle East after Tehran warned the UK and other allies their regional bases would be targeted if they helped defend Israel in the growing conflict between the two heavily armed countries.

In his post, Mr Trump said: “President Putin called this morning to very nicely wish me a Happy Birthday, but to more importantly, talk about Iran, a country he knows very well. We talked at length.

“Much less time was spent talking about Russia/Ukraine, but that will be for next week. He is doing the planned prisoner swaps – large numbers of prisoners are being exchanged, immediately, from both sides.

“The call lasted approximately 1 hour. He feels, as do I, this war in Israel-Iran should end, to which I explained, his war should also end.”

Kremlin aide Yuri Ushakov said President Putin condemned Israel’s military operation in Iran and expressed concerns about the risk of escalation.

During the conversation, the Russian leader briefed President Trump on his recent talks with the leaders of Israel and Iran – reiterating Russia’s hopes to seek mutually acceptable solutions on Iran’s growing nuclear issue.

Meanwhile, the latest round of US-Iran nuclear talks scheduled for Sunday in Muscat will not take place, a senior US administration official has told Sky’s US partner network NBC News.

However, the official said the US is “not shutting the door to future discussions”.

“While there will be no meeting on Sunday, we remain committed to talks and hope the Iranians will come to the table soon,” the official said.