In recent days, Nvidia shares have lost billions in market value and the chipmaker has fallen from its position as the most valuable stock on Wall Street. But the worries may be short-lived.
Nvidia’s shares had fallen since it briefly overtook Microsoft last week as Wall Street’s most valuable, falling nearly 13% in just three days, the worst since 2022. With a market capitalization of $2.97 trillion, the company trails Microsoft, at $3.34. trillion, and Apple, at $3.22 trillion.
Because Nvidia has become so enormous, the movements of its shares weigh extra heavily on the S&P 500 and other indexes. It was by far the heaviest weighting on the S&P 500 on Monday.
Market watchers would prefer to see more diversification, as they worry that Nvidia and a handful of other companies alone are responsible for much of the S&P 500’s returns lately. They would prefer a stock-heavy market. participate in the profits.
There’s almost insatiable demand for Nvidia’s chips to power artificial intelligence applications, and the company has played a big role in the U.S. stock market’s recent record runs, even as the economy’s growth slows under the weight of the high interest rates. But the rise of AI is happening so quickly that it is raising concerns about a possible stock market bubble and over-expectations among investors.
Still, investor concerns may be reassuring as Nvidia Corp. shares. were up more than 5% during trading on Tuesday. The recovery for Nvidia sent the Nasdaq composite higher, heading for its first gain in four days.
Derren Nathan, head of equity research at Hargreaves Lansdown, said in a statement that while Nvidia shares have fallen in recent days, you also have to look at the bigger picture.
“The stocks are still up 190% over a 12-month period, so it’s no surprise that some investors are holding on to some of their gains,” he said.
Nathan is also not concerned about the possible consequences for the wider spread. “While Nvidia has sneezed, the broader market hasn’t caught a cold with a mix of less extreme moves in either direction for the rest of the Magnificent 7,” he said.
The Magnificent 7, which includes Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla, is a small group of stocks responsible for a large portion of the US stock market’s total returns.
Investors could also be happy with better-than-expected consumer confidence and a solid labor market. U.S. employers added a whopping 272,000 jobs last month, a sign that companies still have enough confidence in the economy to hire despite persistently high interest rates.
In the long term, the market may remain optimistic about Nvidia’s prospects. Analysts estimate that the company’s revenue for the fiscal year ending in January 2025 will be $119.9 billion — about double its revenue for fiscal 2024 and more than four times its revenue from the previous year.
