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).
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.
Please use Chrome browser for a more accessible video player
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.
Read more business news from Sky News:
Telegraph suitors given deadline in £600m bidding war
Getir shareholders back break-up of food delivery group
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.
Keep up with all the latest news from the UK and around the world by following Sky News
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.
Authorities in California have vowed to arrest anybody caught looting in burnt-out neighbourhoods, with one official warning: “We are not screwing around with this.”
Five separate wildfires continue to burn across Los Angeles County, including the Pacific Palisades blaze – which has torn through more than 20,000 acres of land and destroyed an estimated 5,000 structures.
Los Angeles sheriff Robert Luna said a curfew enforced overnight on Thursday would start again at 6pm local time on Friday (2am on Saturday, UK time).
LA fires updates:
Wildfires burn for fourth day killing at least 10
The curfew – which forbids anyone from entering mandatory evacuation areas between 6pm and 6am – was brought in after officers arrested several people for looting in the burned areas. It will be “strictly enforced”, Sheriff Luna added.
“We’re not screwing around with this, we don’t want people taking advantage of our residents that have already been victimised,” he said at a press conference.
The punishment for looting is a $1,000 fine and even potential jail time.
Fire crews battling the Kenneth Fire overnight. Pic: AP
National Guards stand near the structures burned by the Eaton Fire. Pic: Reuters
The National Guard has been deployed to help secure areas affected by the fires. They are helping to manage restriction zone checkpoints and prevent looting.
Pacific Palisades, which has borne the brunt of the destruction, is an exclusive neighbourhood loved by celebrities – many of whom have seen their homes completely burnt out.
Paris Hilton’s house in the nearby Malibu has also been destroyed, along with a number of other beachfront properties.
A staircase is all that’s left partially standing in a Palisades property after fires ripped through the area. Pic: AP
Beachside buildings destroyed by the Palisades fire. Pic: AP
Authorities are cracking down on illegal drone usage in fire traffic areas after a fire-fighting ‘super scooper’ plane was grounded due to being damaged by a drone.
They are continuing to investigate what caused the fires. A suspected arsonist was arrested near the Kenneth fire on Thursday afternoon local time.
The officials’ warning to looters came as 153,000 people remain under evacuation orders. While the fires are still burning, some evacuated residents have been able to make brief trips to their neighbourhoods – where many have discovered their homes reduced to ashes.
Please use Chrome browser for a more accessible video player
LA residents weep as they return to burned homes
Authorities have also confirmed at least 10 people have been killed.
Among them was Rodney Nickerson, an 82-year-old who decided to stay in his home in Altadena, a suburb north of Los Angeles.
His daughter Kimiko Nickerson told Sky News: “He just didn’t want to evacuate. He’s been living here since 1968, and he’s been in Altadena my whole life.
“Like all of us on this block, in four blocks, he didn’t think it was going to be this devastating.”
Read more:
In pictures: Before and after the blazes
What caused the fires?
Furious woman challenges LA governor
The Palisades blaze – the biggest of the five – is just 8% contained, while the Kenneth fire, which threatens another celebrity-loved neighbourhood, Calabasas, has burnt through 1,000 acres and is 35% contained.
At least 10,000 structures, including thousands of homes, have been destroyed across the region.
The fires that have been raging in Los Angeles County this week may be the “most destructive” in modern US history.
In just three days, the blazes have covered tens of thousands of acres of land and could potentially have an economic impact of up to about $150bn (£123bn), according to private forecaster Accuweather.
Sky News has used a combination of open-source techniques, data analysis, satellite imagery and social media footage to analyse how and why the fires started, and work out the estimated economic and environmental cost.
More than 1,000 structures have been damaged so far, local officials have estimated. The real figure is likely to be much higher.
“In fact, it’s likely that perhaps 15,000 or even more structures have been destroyed,” said Jonathan Porter, chief meteorologist at Accuweather.
These include some of the country’s most expensive real estate, as well as critical infrastructure.
Beachfront properties in Malibu were destroyed by the Palisades fire. Pic: PA
Accuweather has estimated the fires could have a total damage and economic loss of between $135bn and $150bn.
“It’s clear this is going to be the most destructive wildfire in California history, and likely the most destructive wildfire in modern US history,” said Mr Porter.
“That is our estimate based upon what has occurred thus far, plus some considerations for the near-term impacts of the fires,” he added.
The calculations were made using a wide variety of data inputs, from property damage and evacuation efforts, to the longer-term negative impacts from job and wage losses as well as a decline in tourism to the area.
The Palisades fire, which has burned at least 20,000 acres of land, has been the biggest so far.
Sentinel satellite imagery of the Pacific Palisades from space, taken around 15 minutes after the Palisades fire was first reported. The red indicates the area of land that had already burned. Pic: Sentinel Hub
Satellite imagery and social media videos indicate the fire was first visible in the area around Skull Rock, part of a 4.5 mile hiking trail, northeast of the upscale Pacific Palisades neighbourhood.
These videos were taken by hikers on the route at around 10.30am on Tuesday 7 January, when the fire began spreading.
At about the same time, this footage of a plane landing at Los Angeles International Airport was captured. A growing cloud of smoke is visible in the hills in the background – the same area where the hikers filmed their videos.
The area’s high winds and dry weather accelerated the speed that the fire has spread. By Tuesday night, Eaton fire sparked in a forested area north of downtown LA, and Hurst fire broke out in Sylmar, a suburban neighbourhood north of San Fernando, after a brush fire.
These images from NASA’s Black Marble tool that detects light sources on the ground show how much the Palisades and Eaton fires grew in less than 24 hours.
On Tuesday, the Palisades fire had covered 772 acres. At the time of publication of Friday, the fire had grown to cover nearly 20,500 acres, some 26.5 times its initial size.
The Palisades fire was the first to spark, but others erupted over the following days.
At around 1pm on Wednesday afternoon, the Lidia fire was first reported in Acton, next to the Angeles National Forest north of LA. Smaller than the others, firefighters managed to contain the blaze by 75% on Friday.
On Thursday, the Kenneth fire was reported at 2.40pm local time, according to Ventura County Fire Department, near a place called Victory Trailhead at the border of Ventura and Los Angeles counties.
This footage from a fire-monitoring camera in Simi Valley shows plumes of smoke billowing from the Kenneth fire.
Sky News analysed infrared satellite imagery to show how these fires grew all across LA.
The largest fires are still far from being contained, and have prompted thousands of residents to flee their homes as officials continued to keep large areas under evacuation orders. It’s unclear when they’ll be able to return.
“This is a tremendous loss that is going to result in many people and businesses needing a lot of help, as they begin the very slow process of putting their lives back together and rebuilding,” said Mr Porter.
“This is going to be an event that is going to likely take some people and businesses, perhaps a decade to recover from this fully.”
The Data and Forensics team is a multi-skilled unit dedicated to providing transparent journalism from Sky News. We gather, analyse and visualise data to tell data-driven stories. We combine traditional reporting skills with advanced analysis of satellite images, social media and other open source information. Through multimedia storytelling we aim to better explain the world while also showing how our journalism is done.
US
Donald Trump says he’s ‘totally innocent’ and thanks judge moments before no-penalty sentence in hush money case
Donald Trump has been handed a no-penalty sentence following his conviction in the Stormy Daniels hush money case.
The incoming US president has received an unconditional discharge – meaning he will not face jail time, probation or a fine.
Manhattan Judge Juan M Merchan could have jailed him for up to four years.
The sentencing in Manhattan comes just 10 days before the 78-year-old is due to be inaugurated as US president for a second time on 20 January.
Trump appeared at the hearing by video link and addressed the court before he was sentenced, telling the judge the case had been a “very terrible experience” for him.
He claimed it was handled inappropriately and by someone connected with his political opponents – referring to Manhattan district attorney Alvin Bragg.
As it happened:
Trump sentenced in Manhattan court
Trump said: “It was done to damage my reputation so I would lose the election.
“This has been a political witch hunt.
“I am totally innocent. I did nothing wrong.”
Concluding his statement, he said: “I was treated very unfairly and I thank you very much.”
The judge then told the court it was up to him to “decide what is a just conclusion with a verdict of guilty”.
He said: “Never before has this court been presented with such a unique and remarkable set of circumstances.
“This has been a truly extraordinary case.”
He added that the “trial was a bit of a paradox” because “once the doors closed it was not unique”.
Pic: Reuters
Prosecutor Joshua Steinglass had earlier argued in court that Trump “engaged in a campaign to undermine the rule of law” during the trial.
“He’s been unrelenting in his attacks against this court, prosecutors and their family,” Mr Steinglass said.
“His dangerous rhetoric and unconstitutional conduct has been a direct attack on the rule of law and he has publicly threatened to retaliate against the prosecutors.”
Mr Steinglass said this behaviour was “designed to have a chilling effect and to intimidate”.
It comes after the US Supreme Court rejected a last-ditch attempt by Trump to delay sentencing in the case on Thursday.
Trump’s lawyers argued that evidence used during the trial violated last summer’s Supreme Court ruling giving Trump broad immunity from prosecution over acts he took as president.
Read more
A guide to Trump’s inauguration
Trump refuses to rule out military force over Panama Canal
Trump appeared via videolink with his attorney Todd Blanche. Pic: Reuters
Trump’s hush money conviction in May 2024 means he will become the first person convicted of a felony to assume the US presidency.
He was found guilty in New York of 34 counts of falsifying business records relating to payments made to Ms Daniels, an adult film actor, before he won the 2016 US election.
Prosecutors claimed he had paid her $130,000 (£105,300) in hush money to not reveal details of what Ms Daniels said was a sexual relationship in 2006.
Trump has denied any liaison with Ms Daniels or any wrongdoing.
The trial made headlines around the world but the details of the case or Trump’s conviction didn’t deter American voters from picking him as president for a second time.
Trump appears in court during his trial. Pic: AP
What is an unconditional discharge?
Under New York state law, an unconditional discharge is a sentence imposed “without imprisonment, fine or probation supervision”.
The sentence is handed down when a judge is “of the opinion that no proper purpose would be served by imposing any condition upon the defendant’s release”, according to the law.
It means Trump’s hush money case has been resolved without any punishment that could interfere with his return to the White House.
Unconditional discharges have been handed down in previous cases where, like Trump, people have been convicted of falsifying business records.
They have also been applied in relation to low-level offences such as speeding, trespassing and marijuana-related convictions.
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports9 months agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business2 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway