Analysts believe that the main reason for nvidia's recent decline is still the concern about whether the massive spending on AI by the company is sustainable, and there may not be too many positive news driving it in the short term. However, analysts still hold an optimistic attitude towards nvidia's fundamentals and long-term prospects, implying the need for more patience.
Leading ai stocks $NVIDIA (NVDA.US)$ On Tuesday, it experienced a large drop, and its market cap evaporated by a record $279 billion. Media reports that Nvidia's sharp decline has traders anxiously searching for the next support level.
Jay Woods, Chief Global Strategist at Freedom Capital Markets, believes that $100 is a key level for Nvidia's stock price, which is roughly the level of last month's lowest closing price. Nvidia's stock opened on Wednesday with a 3.3% decline, but later turned up 1.38%, before ultimately closing down 1.66%.
Woods states:
"I don't want to see the stock hit a new low. If it breaks the low point of August, it will truly signal that at least from a technical perspective, the situation has changed. I believe the stock price will find support around $100, and then trade sideways for a while."
Nvidia fell by 16% in the four trading days before Wednesday, mainly due to the chip manufacturer's earnings falling short of high expectations. In addition, investors' anxiety was further intensified by two research reports released on Tuesday, warning about the company's spending on artificial intelligence. After the Tuesday closing, more bad news came in the form of media reports that Nvidia has received a subpoena from the US Department of Justice for an antitrust investigation.
Michael Kirkbride, portfolio manager at Evercore Wealth Management, stated that Nvidia's stock is facing the issue of having few foreseeable events that could bring positive momentum in the future.
He said:
We are currently in a bit of a blank period, with the end of the financial reporting season and a large amount of economic data set to be released this month. There is a lot of caution surrounding this. When you are in a trading vacuum, the market becomes very short-term and turns into a preemptive selling market.
After several months of turmoil, the sharp decline in Nvidia stocks has dragged down global chip manufacturers and risk assets. Nvidia's drop on Tuesday was the seventh time in two months that the stock has fallen more than 6%. Data shows that Nvidia's 30-day volatility has also reached its highest level since mid-2022.
Investors are reviewing Nvidia's performance last month and looking for possible bottoms. In August, Nvidia experienced a pullback, with the stock falling 27% from its peak in June and then rebounding to a level less than 5% from its record high. At the time, the decline was attributed to concerns about macroeconomic worries and the sustainability of massive spending on artificial intelligence, which are now resurfacing.
On Tuesday, research reports from JPMorgan Asset Management and BlackRock Investment Institute focused on the issue of Nvidia's largest client receiving relatively small returns after investing billions of dollars.
Michael Cembalest, JPMorgan's Chairman of Market and Investment Strategy, said that in the next 12 to 18 months, Nvidia needs to demonstrate broader demand from corporate clients, rather than just customers like OpenAI who spend on training new models, in order to prove that the large investments in AI technology are justified.
Meanwhile, Jean Boivin, who leads the BlackRock Investment Institute, stated that the construction of data centers and improvements in processing capacity typically take "years, not quarters," so investors need to be patient.
However, Boivin suggests that investors should continue to be overweight in AI stocks, as the recent sell-off in the technology sector "implies room for repositioning."
Freedom Capital's Woods and Evercore WM's Kirkbride are also optimistic about the long-term outlook for Nvidia. Woods believes that this week's decline is not a reason to panic, while Kirkbride stated that the company's fundamentals or earnings reports are not an issue.
Kirkbride said, "We are still long-term holders, haven't heard anything changing the story, either about Nvidia or its clients and their spending plans. We are buying now."
Although Nvidia ranks only third in the S&P 500 index with a weight of 6.1%, it has become a major driver of the benchmark this year. Since January, the stock price of this chip manufacturer has been leading the broader market trend, and this week's sharp decline does not bode well for the outlook of the S&P 500 index.
Editor/Somer