Record-High Performance Yet Stock Down 11%: The Truth Behind the 'Twist' Happening at NVIDIA

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This time, I will be covering NVIDIA, the leader in AI semiconductors.
The stock price, which hit a record high on October 6, fell by approximately 11% by October 22. However, the company’s performance continues to hit record highs.

Why does the stock price fall even though performance is excellent? I am sure many of you have looked at the news and felt puzzled. In this article, I will unravel that confusion step by step.

By the time you finish reading, you should understand the following four points.

• What happened this time

• The four reasons that pushed the stock price down

• The mechanism of ‘profits increased but the stock price did not rise’

• What to pay attention to from now on

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Chapter 1: What happened: An 11% drop in two weeks

NVIDIA’s stock price fell by approximately 11.3% from a closing price of $239.24 on October 6 to a closing price of $212.21 on October 22. In terms of market capitalization (the total value of the company, calculated by multiplying the stock price by the number of shares issued), this means approximately $650 billion disappeared in just over two weeks.

It was also reported that on October 23, it temporarily ceded the top spot in global market capitalization to Apple.

That said, the impression changes slightly when looking at Figure 1. Compared to the beginning of the year (closing price of $188.41 on January 2), it is still more than 10% higher.

NVIDIA stock also hit a high in May of this year, then fell by about 18% by late June. This current decline is at least the second major correction this year.

Chapter 2: Performance is actually excellent

In direct contrast to the stock price, the company’s figures are trending upward.

Revenue for the May-July 2026 period was $96.2 billion. This is more than double the same period a year ago. The company expects revenue for the next period, August-October, to be $108 billion (with a 2% margin), and plans to set another record high.

Furthermore, at the earnings briefing in August, the company even issued a forecast that revenue for the next fiscal year (February 2027 to January 2028) would increase by approximately 70%. According to reports, the market’s expectation until then was an increase of about 44%, so this is a fairly bullish figure.

Moreover, the company explains that actual demand is even greater, and they are capping it at 70% because component supply cannot keep up.

Hearing this, you might think there is no reason for the stock price to fall. So, what was happening?

Chapter 3: Four Reasons That Pushed Down the Stock Price

It is easier to understand this decline by dividing it into four layers. Arranged from the outside in, they are as follows.

1. Interest rates and prices (the outermost layer, concerning the economy as a whole)

2. Anxiety over the debt of AI companies

3. Doubts about whether AI investments can truly be recouped

4. NVIDIA’s own weaknesses

This is my speculation, but I believe 1 and 2 had the greatest impact, and that 1 was the trigger for this event. Changes occurring on the outside sparked anxiety specific to AI, and finally, attention turned to NVIDIA’s own weaknesses. That is the order. Let’s look at them one by one.

3-1 Interest rates and prices: The first rate hike in three years

On September 16, the FRB (Federal Reserve Board; the central bank of the United States) raised the policy interest rate by 0.25% to 3.75–4.00%. This is the first rate hike in about three years since 2023.

Adding insult to injury was the September Consumer Price Index (CPI: a statistic showing the movement of prices for goods and services we buy) announced on October 14. At 3.7% year-on-year, growth accelerated from 3.4% in August, and according to reports, it exceeded market expectations (3.6%). The biggest driver was gasoline, which rose 9.1% in one month. According to reports, crude oil has exceeded $100 per barrel due to rising tensions in the Middle East.

However, if you break down the contents, a slightly different picture emerges. Prices excluding volatile food and energy (Core CPI: an indicator for looking at the underlying trend of prices) remain at 2.6%. On the other hand, energy is 20.4% higher than it was a year ago. The current high prices are largely due to the rise in energy costs.

Even so, as long as prices do not fall, the FRB may continue to raise interest rates. The market has begun to brace itself for this.

So, why are growth stocks like NVIDIA prone to being sold when interest rates rise?

The stock price of a growth stock is packed with the expectation that it will ‘earn a lot many years from now.’ When interest rates rise, the discount rate used to convert those future profits into current value also rises, so the further out the profit is, the more its current value diminishes.

Furthermore, for companies building AI data centers with debt, rising interest rates mean increased interest payments. The rise in interest rates also affects the wallets of NVIDIA’s customers.

3-2 AI company debt: A sign that ‘lending money is scary’

In the same week that inflation statistics were released, there was another piece of news that caught my attention.

It was reported that the corporate bond yields of CoreWeave, the largest ‘Neo-Cloud’ company (a new type of cloud provider that rents out AI-specialized semiconductors, distinct from major IT firms), had exceeded 15%, with some bonds even surpassing 16%.

Think of corporate bond yields as the interest rate a company pays when it borrows money. The higher this rate, the more the market feels that ‘lending money to this company is risky.’ A yield exceeding 15% can be seen as a sign that the market has begun to seriously worry about the flow of money supporting AI infrastructure.

Then, on October 22, it was actually comments from NVIDIA CEO Jensen Huang himself that were said to have deepened the decline. According to CNBC, Huang stated that while demand for Neo-Cloud is very strong, the demand for capital is significantly outstripping supply. Reports indicate that on this day, the semiconductor stock index fell 6.7%, and NVIDIA fell 4.4%.

This is my speculation, but I believe Huang wanted to convey that ‘demand is this strong.’ However, it seems the market heard it as ‘there isn’t enough money to support the demand.’

3-3 Recovery of AI Investment: Numbers Falling Short of Expectations

The third reason is a question that has been smoldering for a long time: Can the massive investments in AI really be recouped?

On October 8, it was reported that the annualized revenue OpenAI showed to investors was approximately $50 billion, lower than the $68 billion reported in September. While some view this as a difference in accounting methods, NVIDIA’s stock fell about 2.9% that day.

According to reports, Meta also saw its stock price fall by about 7%, even though it announced revenue that exceeded market expectations. What the market was concerned about was not the revenue, but the ballooning amount of investment in AI.

Can the companies using AI earn enough to justify the investment? As long as there is no conviction in that, a suspicious eye will also be turned toward NVIDIA, the company selling the AI tools.

3-4 NVIDIA’s Own Weaknesses: Small, but Not to be Overlooked

Finally, there is the matter of NVIDIA itself. While the impact is relatively small, it becomes noticeable when linked to the anxieties mentioned so far.

The first is the outlook for declining profit margins. The gross margin (a figure showing what percentage of revenue remains after subtracting the cost of goods sold) was 75% for the May-July period. However, because memory prices are rising more than expected, the company expects it to fall to 71-72% for the November-January period, and return to 72-73% in the next fiscal period as price increases take effect.

The second is financial support for customers. NVIDIA has disclosed that it has guaranteed a total of up to $108.5 billion to support the construction of data centers by its AI company customers. According to the company, demand from these AI companies, which it is supporting financially, is expected to account for about one-quarter of its business in the next fiscal period.

The company’s explanation at the earnings call is as follows: While demand from AI companies is growing rapidly, their ability to borrow money to equip their facilities is not keeping up. Therefore, NVIDIA is investing about $50 billion in AI companies and creating a framework to raise over $500 billion from external sources in partnership with six major investment firms.

The company itself acknowledges that this could be criticized as ’round-tripping’ (a form where the seller provides money to the buyer, and that money is used to purchase the seller’s products). That said, its position is that the counterparties are historic growth companies and the risks are limited.

This second weakness connects directly to the anxiety about debt in 3-2. If the financial health of the customers NVIDIA is supporting is questioned, then the sustainability of NVIDIA’s revenue is also called into question.

Chapter 4: NVIDIA Was Not the ‘Most Sold’ Stock

Let’s step back for a moment and compare it with other companies. Figure 3 shows the stock price movements since October 6.

Broadcom is down 13.9% and Meta is down 12.1%, showing larger declines than NVIDIA’s 11.3%. On the other hand, Apple rose 4.3%.

While the market is pulling money out of AI-related stocks, it seems to view NVIDIA as a relatively safe haven within that sector. Reports cite its high profit margins as the reason.

Chapter 5: The Truth Behind the ‘Twist’ Lies in the Stock Price Multiplier

As an individual investor, you might be wondering, ‘If profits are increasing, why isn’t the stock price going up?’ or ‘Is it undervalued now that it has fallen?’

This is where the P/E ratio (Price-to-Earnings ratio, a metric used to measure whether a stock is expensive or cheap by showing how many times the stock price is relative to earnings per share) becomes useful. The stock price can be expressed by the following multiplication:

Stock Price = Earnings Per Share (EPS) × P/E Ratio

For example, if a company earns $1 per share annually and the market thinks, ‘It’s worth paying for 30 years of earnings,’ the stock price is $30; if it thinks, ‘Only up to 20 years,’ it is $20. Even if profits increase, if the ‘number of years’ the market is willing to pay shrinks, the stock price will not rise.

Figure 4 shows these three values indexed with the end of October 2025 as 100.

Calculating from the figures in the financial statements, earnings per share for the most recent four quarters nearly doubled from $4.03 at the end of October 2025 to $7.91 at the end of July 2026. However, the P/E ratio shrank by nearly half, from about 50x to about 27x. As a result, the stock price increase was limited to about 5%.

Profits increased, but the multiplier the market applies to those profits decreased. This is the truth behind the ‘twist’ mentioned at the beginning.

One thing to note is that these profits include gains from the appreciation of stocks in which the company has invested. According to the financial statements, the valuation gain on stocks for the last six months was approximately $23.7 billion, which accounts for about 17% of pre-tax profit. Since this portion can increase or decrease depending on the market, it is safer to view it separately from the core earning power of the business.

Furthermore, according to reports, the P/E ratio based on next fiscal year’s projected earnings is about 16x, which is lower than AMD (about 40x) and Broadcom (about 19x).

Why does the multiplier shrink?

There are two main reasons why the P/E ratio might fall.

One is an issue with NVIDIA itself. This is when the market views current profits as being near the peak of the business cycle and expects them to eventually decline.

The other is a market-wide issue. This is when interest rates rise and the multipliers for growth stocks as a whole decline.

This is my own speculation, but since NVIDIA’s decline was smaller than other AI-related stocks this time, I believe the second influence is greater. If that is the case, for the stock price to recover, it will be necessary for anxieties surrounding interest rates and debt to ease rather than just NVIDIA’s earnings results.

The idea that it ‘looks cheap’ is conditional, based entirely on the assumption that these profits will continue.

Even if you don’t own NVIDIA stock, you aren’t unaffected

Some of you might have thought, ‘I don’t own NVIDIA stock, so it doesn’t concern me.’

However, NVIDIA is a company with one of the highest market capitalizations in the world. It is also included in a large proportion of U.S. stock and global stock index funds (investment trusts linked to stock indices). According to reports, in one major semiconductor ETF (an investment trust that can be bought and sold on a stock exchange), the inclusion ratio is as high as approximately 18%.

Even those who invest in index funds are being affected by NVIDIA’s price movements without knowing it. Moreover, this time, AI-related stocks like NVIDIA, Broadcom, and Meta all moved in the same direction. Even if you hold several AI-related stocks, they can all fall together for the same reasons: interest rates and debt.

Chapter 6: The Arguments of the Bulls and the Bears

Even when looking at the same facts, people’s interpretations differ. I have broken down the main factors by theme, separating them into bullish and bearish views.

Earnings Momentum

• Bullish: Forecast is for an approximately 70% increase next term. Mass production shipments of the new ‘Vera Rubin’ product will begin in August, and it is expected to account for about 20% of data center sales in the August-October quarter

• Bearish: Gross profit margin is expected to fall from 75% to 71-72%

Earning Power per Facility

• Bullish: The company explains that the sales opportunity per gigawatt of data center scale will expand from approximately $18 billion in the old generation to approximately $40 billion in the Vera Rubin generation

• Bearish: If major IT companies increase their own AI semiconductors, they may be able to exert pressure in price negotiations

Customer Profile

• Bullish: Of the $89 billion in data center sales, approximately $48.7 billion is for major cloud providers with solid finances

• Bearish: Anxiety over the debt of neo-cloud providers. Some of the demand is supported by NVIDIA’s own guarantees and investments

Regulations and International Situation

• Bullish: The company has not included data center sales for China in its forecast for this term. If sales resume, it will be an added bonus

• Bearish: The Middle East situation and high crude oil prices are pushing up prices, raising the risk of prolonged interest rate hikes

If the bears are right, how far could it fall?

This is also my speculation. A benchmark would be past declines. This year, it fell about 18% from its May high and about 11% from its October peak. According to reports, the lowest price in the past year was $164.27, which is about 20% lower than the closing price on October 22. Looking back further, there was a time between November 2021 and October 2022 when it fell by more than 60% from its high.

However, both of this year’s declines were cases where ‘earnings forecasts remained the same, but the multiples simply contracted.’ If the earnings forecasts themselves were to be lowered, the decline in multiples and the reduction in profits would act in a multiplicative way. In that case, past decline margins would not be very reliable.

Chapter 7: What to Watch From Now On

Over the next seven weeks, interest rate decisions and earnings reports will arrive alternately.

1. October 27–28 FOMC: Will there be an additional rate hike at the FOMC (Federal Open Market Committee, the meeting where the Fed decides interest rates)? Reports suggest the probability of a rate hike is around 30%.

2. November 10: October CPI: Will the growth in prices stop?

3. November 17: NVIDIA Earnings (Company-announced date): There are three things I want to watch: Will revenue exceed the lower end of the forecast (approx. $106 billion)? Can the gross margin maintain the lower end of the forecast (73.5%)? Will they maintain the forecast of about 70% growth for the next fiscal year?

4. December 8–9 FOMC: The final interest rate decision of the year.

For items without fixed dates, the bond yield of CoreWeave serves as a ‘thermometer’ for the money supporting AI. Whether it falls from around 15% will reveal the direction of anxiety regarding debt.

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Summary

1. This decline is not because NVIDIA’s performance has worsened. The main triggers were changes in the ‘price of money supporting AI,’ namely anxiety over interest rates and debt.

2. The reason the stock price does not rise even when profits increase is that the P/E ratio has shrunk. Whether it is undervalued depends on whether those profits can be sustained.

3. The immediate turning points are the FOMC and the November 17 earnings report. Whether past decline margins serve as a benchmark will also change depending on whether earnings forecasts are maintained.

Reference Materials

Primary Sources

Reports and Data