Nvidia stock fell on Wednesday, continuing the chip maker’s historic drop from the previous day. The stock and broader chip sector have been on a wild ride that doesn’t appear to be settling down.
Nvidia shares closed down 1.7% to $106.21. Among other chip makers, Advanced Micro Devices was up 2.9% and Broadcom was up 0.9%. The iShares Semiconductor exchange-traded fund (SOXX) was up 0.3%.
Nvidia briefly broke into positive territory when the broader market turned higher after the release of July’s Job Opening and Labor Turnover Survey. The S&P 500 and Nasdaq Composite eventually gave up those gains, ending the day in the red.
Nvidia stock closed down 9.5% on Tuesday, which led to the largest one-day market-capitalization loss for any U.S. company on record. The SOXX ETF also fell.
There was no specific news that triggered the chip selloff on Tuesday, although it deepened following the release of weak U.S. manufacturing data that prompted fears of an economic slowdown. On Wednesday, a weaker JOLTS report caused the chip sector to rally. The debate over how frothy stock valuations have become—particularly for companies such as Nvidia, which are dependent on continued heavy investment in artificial intelligence—is playing out in share prices.
On Tuesday, Nick Maggiulli, chief operating officer at Ritholtz Wealth Management, offered his view. “As impressive as Nvidia’s growth has been, I’m here to tell you that its valuation is out of control. Maggiulli noted that ahead of Tuesday’s selloff, Nvidia’s price-to-sales ratio—which currently stands at around 28 times—outstripped that of Microsoft at the height of the dot-com bubble.
“So, if you own lots of Nvidia stock, I will say the same thing that I said to Tesla shareholders back in early 2021—just take the money,” Maggiulli wrote.
Arguably, the price-to-sales metric is somewhat cherry-picked. If judged on a price-to-earnings ratio, Nvidia trades at a multiple of around 31 times forward earnings estimates, far below Microsoft’s dot-com peak of more than 60 times. In fact, after Tuesday’s selloff, Nvidia doesn’t look significantly more expensive than Microsoft or Apple on a forward price-to-earnings basis.
Ritholtz’s Maggiulli is swimming against the Wall Street tide. About nine of 10 analysts—93%—have Buy or equivalent ratings on Nvidia stock, while none rate it at Sell or the equivalent, according to FactSet. The average price target on the stock is $149.27.
However, Nvidia’s volatility is a sign of how much “hot money,” or short-term investments made in the hope of quick returns, is flowing in and out of the stock. For example, the GraniteShares 2x Long NVDA Daily ETF (NVDL) is the largest leveraged single-stock exchange-traded fund in the U.S. market by a long way, with $4.99 billion in assets.
Until such short-term money moves on to another sector of the market, expect plenty of volatility in Nvidia stock.
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