(Bloomberg) — Shares of Nvidia Corp. fell on Monday, with the AI-focused chipmaker entering correction territory as it continued a sharp recent sell-off.
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The stock fell 4.8% and is on track for its third negative session in a row. The price has fallen 12% in the last three days, crossing the 10% threshold that represents a correction. The decline weighed on chipmakers, with the Philadelphia Stock Exchange Semiconductor Index falling as much as 2.2% on Monday. Broadcom Inc., Taiwan Semiconductor Manufacturing Co. and Qualcomm Inc. were all down at least 2%.
The three-day decline wiped out more than $400 billion from Nvidia’s market cap, putting the company back below the $3 trillion threshold, and below both Microsoft Corp. and Microsoft Corp. in size. as Apple Inc. Nvidia briefly claimed the title as the world’s largest stock last week.
“In the near term, it is likely that investors will experience AI fatigue or more broadly worry about index concentration,” said Neville Javeri, portfolio manager and head of the Empiric LT Equity team at Allspring Global Investments.
Even with the slump, Nvidia continues to rise more than 140% this year, making it the second-best performer among S&P 500 Index constituents behind Super Micro Computer Inc., another AI favorite.
The stock suffered a decline of about 20% earlier this year, although it quickly returned to record highs.
While investors have flocked to Nvidia due to skyrocketing demand for its chips used in AI processing, the size of Nvidia’s rally (which also rose about 240% over the course of 2023) has underscored concerns about its valuation. The stock is trading at nearly 23 times estimated sales over the next twelve months, making it the most expensive in the S&P 500 by this measure. Yet it remains a popular exchange on Wall Street. Nearly 90% of analysts tracked by Bloomberg recommend buy, and the average analyst price target points to an upside of about 10% from current levels.
“The momentum in Nvidia and AI stocks in general has been stunning,” said Charlie Ashley, portfolio manager at Catalyst Funds. “As far as investing goes, I wouldn’t be a contrarian at this point.”
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