NVIDIA Adjustment: The Natural Rhythm of Industry Cycles

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Recently, NVIDIA's stock price has undergone an adjustment, sparking widespread discussion in the market.

First, we need to clarify that NVIDIA's performance has not suffered any substantial setbacks. So, what are the reasons behind the stock price volatility? Essentially, this is the result of market expectations self-adjusting. Although NVIDIA's performance remains impressive, earlier market expectations might have been overly optimistic. As these expectations gradually get digested, the stock price adjusts accordingly, seeking a new equilibrium point.

Next, let's delve into some key reasons behind NVIDIA's stock price adjustment.

As a member of the semiconductor industry, NVIDIA is inevitably affected by industry cycles. In cyclical industries, stock prices often bottom out when the P/E ratio is highest, and peak when the P/E ratio is lowest. This is because, at the highest P/E ratio, the industry might be at a low point, with performance about to rebound; conversely, at the lowest P/E ratio, although performance is at its best, it might be at its peak. NVIDIA's stock price adjustment, to some extent, reflects this rhythm of industry cycles.

During the rapid rise of NVIDIA's stock price, the market's expectations for its future might have been overly optimistic. Once these optimistic expectations are fully digested by the market, the stock price naturally needs to undergo some correction. This correction is not a denial of NVIDIA's future prospects but a rational response from the market after reassessing its growth potential.

For growth stocks, changes in the growth rate often matter more than the growth rate itself. As a growth-oriented company, the market's valuation of NVIDIA's stock largely depends on its future growth rate expectations. When the second derivative of the growth rate (i.e., the rate of change of the growth rate) decreases, even if the growth rate itself remains high, the market might adjust the stock price.

The development of the technology industry often exhibits nonlinear characteristics. This means that in certain periods, technological advancements might lead to explosive growth, while in other periods, they might encounter developmental bottlenecks. NVIDIA's stock price adjustment might be a reflection of these nonlinear development characteristics.

In summary, NVIDIA's stock price adjustment is the result of a combination of factors. I believe that in the transformative industries of AI and semiconductors, NVIDIA's future remains promising.