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.
Read more:
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.
Giant projections of Donald Trump alongside paedophile Jeffrey Epstein have been beamed on to Windsor Castle by protesters as the US president arrived in the UK for his second state visit.
Mr Trump has faced mounting questions about his relationship with the disgraced late billionaire after messages allegedly sent to him by the US president were published by Congress earlier this month.
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A giant image of Epstein
Epstein and Ghislaine Maxwell
The US president’s mugshot was projected on the castle too
The apparent notes – which Mr Trump denies having written – appeared in a 2003 “birthday book” for Epstein.
Four people were arrested on “suspicion of malicious communications” after the images of Mr Trump and Epstein appeared on the landmark, Thames Valley Police said.
Two men were also arrested for breaching airspace restrictions in place for Mr Trump’s visit.
Donald Trump, Melania Trump and Jeffrey Epstein
Pic: Reuters
The president is being feted with a stay in Windsor Castle, where he will be hosted by the King and treated to a ceremonial welcome on Wednesday and later, a lavish state banquet.
The Prince and Princess of Wales will meet the president and first lady Melania Trump in the grounds of the Windsor estate, where he will spend the day, before heading to the prime minister’s country residence Chequers on Thursday.
It is hoped the Queen – who pulled out of attending the Duchess of Kent’s funeral on Tuesday after suffering from acute sinusitis – will recover in time to attend the busy run of royal events.
Read more: No one does pomp better than Britain
There are no public-facing engagements for the president throughout his 48-hour state visit, with thousands of people expected to take part in a major protest against his stay in central London today.
The Metropolitan Police said it is preparing for “a significant operation” with as many as 50 protest groups expected to take part.
More than 1,600 officers will be deployed, including 500 assisting from other forces.
A small group of protesters from the Stop Trump Coalition were in Windsor on Tuesday night.
Two protesters from the activist group Fossil Free London were escorted out of a dinner organised by Republicans Overseas UK at Windsor Guildhall in the Berkshire town.
They chanted “how many will you kill if you drill baby drill” and unfurled a banner that said: “Oily Money Kills” at the event.
Donald Trump and First Lady Melania Trump disembark Air Force One. Pic: Reuters
Speaking to reporters mid-flight, Mr Trump said: “My relationship is very good with the UK, and Charles, as you know, who’s now King, is my friend.
“It’s the first time this has ever happened where somebody was honoured twice. So, it’s a great honour.”
He told the journalists “everybody is looking forward to it. You’re going to have the best pictures”.
Tyler Robinson has been charged with the murder of right-wing US influencer Charlie Kirk.
The 22-year-old, from Washington, Utah, was charged with aggravated murder, weapon, and obstruction of justice offences ahead of a court appearance later on Tuesday.
Prosecutors said they would seek the death penalty and that Robinson’s DNA was found on the trigger of the alleged murder weapon.
A note was also found under his keyboard which said: “I had the opportunity to take out Charlie Kirk and I’m going to take it,” according to a charging document from prosecutors.
It is also alleged that the suspect ordered his roommate to delete “incriminating texts” about the killing and to stay silent if questioned by police.
When his roommate texted to ask if he was the “one who did it”, Robinson replied: “I am, I’m sorry,” prosecutors allege.
Robinson is said to have written in another text: “I had enough of his hatred. Some hate can’t be negotiated out.”
He also allegedly wrote he had been planning the shooting for just over a week.
Tyler Robinson. Pic: Utah Governor’s Office
Kirk, 31, was killed at one of his rallies at Utah Valley University last Wednesday.
The political activist, a close ally of US President Donald Trump, died after being shot in the neck with a bullet.
County attorney Jeff Gray said “aggravating factors” in the killing included that the “defendant is believed to have targeted Charlie Kirk based on his political expression and did so knowing children were present and would witness the homicide”.
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The obstruction of justice charges relate to allegations that Robinson disposed of the weapon used in the killing, along with clothing he is said to have worn at the time.
Robinson has been held without bail since his arrest.
Investigators have spoken to Robinson’s relatives and have carried out a search at his family home, 240 miles (385km) southwest of where the shooting took place.
Charlie Kirk moments before he was shot. Pic: Reuters/Trent Nelson/The Salt Lake Tribune
Mr Gray said Robinson had accused Kirk of “spreading hate” during a conversation with his father. He also allegedly described the university as a “stupid venue” for the influencer to hold an event.
After the shooting, the county attorney said the suspect confessed to his parents after they confronted him, telling them he shot Kirk because “there is too much evil in the guy”.
Robinson’s mother told police that her son had become more political and had “started to lean more to the left” in the past year or so, Mr Gray said.
He added that the 22-year-old had become more “pro-gay and trans-rights oriented”, according to his parents.
His mother said he had started to date his roommate, who was “transitioning genders”, prompting “discussions” with his father who had very different political views.
Robinson allegedly wrote in another message to his roommate that “since Trump got into office [my father] has been pretty diehard Maga”.
US
FBI director Kash Patel shouts at Democrat senators over Charlie Kirk and Jeffrey Epstein during oversight hearing
The FBI director has shouted at Democratic senators during a hearing, taking questions on the assassination of Charlie Kirk, Jeffrey Epstein and the firing of agents.
Kash Patel was testifying before a Senate Judiciary Committee for the first oversight hearing of his tenure as director of the US federal law enforcement bureau.
During the hearing on Tuesday, Mr Patel defended the FBI’s handling of the investigation into the killing of Mr Kirk, as well as his social media post saying that a suspect had been arrested, before that person was ultimately released.
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“Could I have been more careful in my verbiage and included ‘a’ subject instead of ‘the’ subject? Sure,” he said of the post.
Democratic senator Cory Booker opened his questioning by accusing Patel of lying about firing FBI agents out of retribution for political investigations.
Five FBI agents and top-level executives were known to have been summarily fired last month, according to the Associated Press.
Booker accused Patel of making the US ‘weaker and less safe’. Pic: AP
Mr Booker said that the director “pushed out senior FBI agents with decades of knowledge and experience”, and added: “You’ve shifted the agency’s priorities primarily to pursuing Donald Trump’s immigration enforcement agenda.
“I believe you have made our country weaker and less safe.”
Mr Patel responded that “you don’t get to say that America is not safer under this leadership”, and said that Mr Booker’s “rant of false information does not bring this country together”, prompting the Democrat to raise his voice.
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The two then shouted at each other before committee chair and Republican senator Chuck Grassley banged his gavel to interrupt them.
“I’ve watched him talk over us, and you’ve never once criticised him for us,” Mr Booker said to the chair as he got up to leave the room. “He has been really disrespectful to senator after senator.”
Mr Patel also clashed with Adam Schiff over Jeffrey Epstein. Pic: AP
Mr Patel also clashed with Democratic Senator Adam Schiff, who questioned the FBI and Trump administration’s handling of questions relating to the deceased paedophile financier Epstein.
The director accused him of “the biggest fraud to ever sit in the United States Senate” as they shouted at each other, and said “you are a political buffoon, at best”.
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Mr Patel, a former lawyer who has been accused of spreading conspiracy theories, was controversially nominated to be the FBI director by US President Donald Trump last year.
He was narrowly confirmed by the Senate in a 51-49 vote in February. Two Republicans voted against his nomination.
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