Nvidia Stock Enters Bear Market Amid AI Sector Sell-Off
Nvidia shares have fallen 23% from the record reached in early October, entering a bear market ahead of the company’s earnings release. Investors’ concerns about the artificial intelligence industry have accompanied heavy selling in Nvidia shares over recent months.
Other AI companies, including businesses Nvidia has invested in, have experienced similar declines. Marvell Technology shares have retreated 57% from their record high. Lumentum shares have fallen 52% from their record high. Selling accelerated after Marvell Technology and Lumentum announced plans to merge. Nvidia-backed neocloud companies CoreWeave, Nebius and IREN have also declined over recent months. Privately funded neocloud businesses backed by Nvidia are struggling as well, with Firmus withdrawing its IPO.
Ken Griffin and Ray Dalio have warned that an AI bubble could burst while interest rates stay elevated. Nvidia’s decline accelerated last week following midterm elections in which Democrats captured both the Senate and the House. The election outcome creates a risk of data center moratoriums, particularly in Texas, where the governor-elect made a moratorium a central policy proposal.
However, Nvidia’s business continues to show no indication of a slowdown. Nvidia’s second-quarter revenue increased to $104 billion. Management expects annual revenue to rise 70% next year. SpaceX recently raised $40 billion to purchase Nvidia chips.
Benzinga data indicates that analysts expect Nvidia’s third-quarter results to show faster revenue growth. Analysts’ average forecast puts quarterly revenue at $108.9 billion, representing growth of 91% from a year earlier. Nvidia frequently exceeds forecasts, so revenue could surpass $114 billion.
Nvidia appears substantially undervalued, with a forward price-to-earnings ratio of 20 compared with a five-year average of 41. The valuation was one reason Nvidia announced a $150 billion share buyback plan.
Nvidia’s daily share-price chart shows sustained pressure over the past month. The shares recently broke below support at $200. The shares also fell through $190, the low reached in June and July. Nvidia shares now trade below both the 50-day and 200-day exponential moving averages, indicating that sellers have gained control. The shares could remain under pressure and reach the 50% retracement level of $165 before recovering.