Nvidia Plunges: AI Bubble Burst or Buying Opportunity?Nvidia, touted by Wall Street as "the most important stock on earth," saw its market cap evaporate by roughly $406 billion this week, putting significant pressure on the U.S
Nvidia Plunges: AI Bubble Burst or Buying Opportunity?
Nvidia, touted by Wall Street as "the most important stock on earth," saw its market cap evaporate by roughly $406 billion this week, putting significant pressure on the U.S. stock market. The drop underscores the growing anxieties about the health of the U.S. economy and the possibility of an AI-related trading frenzy going too far. The world's leading manufacturer of AI chips has shed about one-fifth of its market value over the past two weeks. For a tech giant that practically single-handedly drove the U.S. stock market higher in the past two years, the latest plunge highlights a more urgent issue for investors Nvidias volatility is now dwarfing other Magnificent Seven peers, making even Bitcoin look like a calm harbor in comparison.
Market data shows that Nvidias stock has swung wildly between $90.69 and $131.26 in the past 30 trading days. On Tuesday, its market cap plummeted by a record $279 billion for a single company in U.S. stock history. This level of volatility has pushed its 30-day realized volatility measure to around 80, roughly four times that of Microsoft, twice that of Bitcoin, and above that of Trump Media & Technology Group and a slew of meme stocks, according to data compiled by industry sources. The selloff has pushed the stock to its worst two-week performance in two years, the data showed.
The decline came after the company delivered a tepid outlook last month and flagged shipment delays for its Blackwell chips, dampening investor enthusiasm. News also emerged that the U.S. Department of Justice issued a subpoena to the company as part of an escalating antitrust probe. Broadcoms disappointing sales forecast on Thursday further clouded the outlook for the chip industry as a whole. The market environment youre in is very tough right now, said Rhys Williams, chief strategist at Wayve Capital Management LLC. Where the bottom is [for Nvidia] is anybodys guess.
Of course, even with the recent slide, Nvidia has still delivered handsome returns to investors this year. The stock is still up over 100% for the year, with its market valuation expanding by around $1.3 trillion. Wall Street is broadly expecting Nvidia to continue to perform well as companies build out their AI-related infrastructure, a process expected to continue for at least several more quarters. Data compiled by institutions also shows that Nvidia's largest customersspecifically Microsoft, Meta, and Amazon account for over 40% of its revenue. These tech giants have confirmed their spending plans in recent quarters.
Nvidia's earnings last week actually validated this optimistic outlook. The AI bellwether recorded revenue of $30.40 billion in the second quarter, up 122% year-over-year, and adjusted earnings per share of $0.67, exceeding market expectations but falling short of the most bullish estimates. For long-term investors, this could be a good time to get in, Williams of Wayve Capital said. If I had fresh capital right now, I would be keen on buying some AI-related stocks.
So, whats in store for Nvidia going forward? Some industry insiders have their own perspectives. Ben Reitzes, an analyst at Melius Research, says that while antitrust pressure is a factor that Nvidia investors should keep in mind, there are other factors that may have a bigger impact on the stocks trajectory in the coming months. Reitzes is currently focused on two key aspects: Nvidias margin performance and whether the company can maintain its growth trajectory through fiscal 2026. He believes these two factors could be crucial in determining Nvidias stock performance over the next six months.
In Reitzes' view, investors were so focused on the potential revenue impact of the delayed release of the new Blackwell chip family before the earnings release that they seem to have forgotten about the margin implications of fixing this. He wrote, The key for the stock now is how and when gross margins bottom. Reitzes expects that as inventories stabilize, Blackwell's yield/output will start to rise and gross margins will bottom in fiscal 2026s first quarter, reaching roughly 72.6%. Until then, investors need to be confident about the margin path. He wrote, Once investors feel like Blackwell is going to start driving gross margins back up again, the stock is likely to rise with it in the first half of calendar 2025.
Another concern that has been weighing on Nvidia's stock recently is the renewed debate around AI and its return on investment. Reitzes points out that this echoes what happened around this time last year investors started to question whether 2025 would be the year AI spending peaked because they weren't seeing sufficient AI adoption. However, Reitzes believes investors will receive more information to validate this in the near future. For example, he is bullish on various video generation applications, which could become a key driver of investment and provide more tangible use cases throughout 2026, rationalizing further investment in consumer internet apps.
OpenAIs next generation GPT may also create a wave of adoption among businesses. The next generation of chips after Blackwell from Nvidia could also pique interest in the near future. Reitzes notes that the debate is expected to really ease when we hear more about Rubin at GTC in March next year.
Nvidia's plunge has sparked concerns about an AI bubble bursting, but it has also created buying opportunities for some investors. For those who are bullish on the long-term growth of AI, the recent decline could be a chance to accumulate quality stocks. However, investors need to rationally assess the risks and closely monitor Nvidia's margin performance, the progress of the Blackwell chips, and the actual implementation of AI applications. Ultimately, whether Nvidia can emerge from this downturn will depend on its technological advantages, market competitiveness, and the execution of its future growth strategy.
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