Nvidia lost $470 billion in value in a week. Should investors be concerned?
The artificial intelligence (AI) industry does not seem to have much presence like it did at the beginning of this summer. Investors are increasingly cautious about the ability of technology to provide real-world value, at least in a timeframe that justifies the very high stock valuations that investors have seen.
At the center of this is Nvidia (NASDAQ:NVDA), the poster child for technology. The chipmaker's stock price has fallen by about 15% since reporting its second-quarter earnings on August 28. Its market capitalization is nearly 5 trillion dollars ($470 billion) in just one week. That is an incredible amount. There are only 15 companies on Earth that have a market capitalization that exceeds what the company lost in one week. It shows how big Nvidia is.
Such a drop may make you nervous. It makes me nervous too. But before jumping off the ship, let's consider a little more background.
The entire market is shaking.
Most companies in the AI field are being impacted. But it's not just AI. The entire market is down. There are many factors at play. First, investors want to see more data, such as new employment reports that help indicate the direction of the economy. Tied to this is whether the Federal Reserve will lower interest rates in the coming weeks and, importantly, how much they will lower. So Nvidia's decline happens when the entire market is down. The company is not alone.
Another potential factor to consider is that many investors are simply taking profits. Some may have been waiting to see if the company's second-quarter report would blow expectations again. While it exceeded expectations in many ways, it may not have shown enough to warrant a stock surge and may have hit a turning point. These investors are choosing to realize the incredibly high returns they have seen over the past few years, considering that they don't expect the stock to jump immediately.
Nvidia remains in a very solid position.
Regardless of the reasons for Nvidia's stock decline, it is not so important in the long term. It's a distraction. Do you still believe in Nvidia's long-term prospects? I do.
There are enough reasons to see continued growth in the medium term. It may not have reached the levels of recent quarters, and while profits may more than triple year-on-year, high double-digit growth is not guaranteed. At least for now, concerns about a drying up of revenue sources are exaggerated. Looking at major technology companies like Meta and Alphabet who purchase Nvidia chips, the latest earnings calls not only indicate ongoing growth but also a clear intention to expand spending on ai infrastructure. The gravy train for Nvidia won't slow down anytime soon.
Take a look at the significant increase in capital expenditures from Alphabet over the past 3 years. Did you notice last year's sharp rise?
Looking at the long term, Nvidia's value proposition remains. AI has a high potential to transform the economy, and Nvidia is firmly positioned in the midst of this transformation. Of course, Nvidia is being challenged from all sides by competing companies and must work diligently to stay ahead. But if there's a company that can do it for my money, it's Nvidia. It has shown incredible foresight and the ability to innovate and pivot when finding new opportunities.
Investors are likely to see more concrete examples next year of the impact of ai on corporate earnings. I also believe that investor confidence in Nvidia as a champion in AI will recover.
At the center of this is Nvidia (NASDAQ:NVDA), the poster child for technology. The chipmaker's stock price has fallen by about 15% since reporting its second-quarter earnings on August 28. Its market capitalization is nearly 5 trillion dollars ($470 billion) in just one week. That is an incredible amount. There are only 15 companies on Earth that have a market capitalization that exceeds what the company lost in one week. It shows how big Nvidia is.
Such a drop may make you nervous. It makes me nervous too. But before jumping off the ship, let's consider a little more background.
The entire market is shaking.
Most companies in the AI field are being impacted. But it's not just AI. The entire market is down. There are many factors at play. First, investors want to see more data, such as new employment reports that help indicate the direction of the economy. Tied to this is whether the Federal Reserve will lower interest rates in the coming weeks and, importantly, how much they will lower. So Nvidia's decline happens when the entire market is down. The company is not alone.
Another potential factor to consider is that many investors are simply taking profits. Some may have been waiting to see if the company's second-quarter report would blow expectations again. While it exceeded expectations in many ways, it may not have shown enough to warrant a stock surge and may have hit a turning point. These investors are choosing to realize the incredibly high returns they have seen over the past few years, considering that they don't expect the stock to jump immediately.
Nvidia remains in a very solid position.
Regardless of the reasons for Nvidia's stock decline, it is not so important in the long term. It's a distraction. Do you still believe in Nvidia's long-term prospects? I do.
There are enough reasons to see continued growth in the medium term. It may not have reached the levels of recent quarters, and while profits may more than triple year-on-year, high double-digit growth is not guaranteed. At least for now, concerns about a drying up of revenue sources are exaggerated. Looking at major technology companies like Meta and Alphabet who purchase Nvidia chips, the latest earnings calls not only indicate ongoing growth but also a clear intention to expand spending on ai infrastructure. The gravy train for Nvidia won't slow down anytime soon.
Take a look at the significant increase in capital expenditures from Alphabet over the past 3 years. Did you notice last year's sharp rise?
Looking at the long term, Nvidia's value proposition remains. AI has a high potential to transform the economy, and Nvidia is firmly positioned in the midst of this transformation. Of course, Nvidia is being challenged from all sides by competing companies and must work diligently to stay ahead. But if there's a company that can do it for my money, it's Nvidia. It has shown incredible foresight and the ability to innovate and pivot when finding new opportunities.
Investors are likely to see more concrete examples next year of the impact of ai on corporate earnings. I also believe that investor confidence in Nvidia as a champion in AI will recover.
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HONDA N-ONE : I wonder how it will turn out. It's like Denso is approaching Toyota in terms of market capitalization. I think there is also a perspective of going too far, right?