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Something weird happened in the stock market this week — besides the thumping from a surprise Consumer Price Index (CPI) report.
Market darling Nvidia’s (NVDA) stock fell into correction territory, defined as a 10% decline from a recent high.
At its low of around $830 midway through Tuesday’s session, the stock was down 12.6% from its March 25 high. It has since recovered a bit to $900 but is still off by 5% from the highs.
“This is a breather for Nvidia, as more investors are playing the 2nd and 3rd derivatives of AI across the semi and software ecosystem,” Wedbush tech analyst Dan Ives told me. “We view this as a digestion period for the Street for Nvidia and nothing more.”
Maybe that will prove correct. Who knows?
Bank of America analyst Vivek Arya notes volatility in Nvidia is nothing new — the current sell-off marks the ninth time the stock has declined 10% or more since ChatGPT was launched back in late 2022.
“There are some market factors such as the recent rise in inflation, volatility (VIX), AI stock fatigue, rotation towards more cyclical sectors and possibly some pruning ahead of upcoming earnings season,” Arya said. “On a fundamental basis we have also heard of investor concern around rising competition and reducing lead-times (suggesting decelerating demand) for Nvidia GPU accelerators (though expected as new Blackwell demand grows).”
I happen to think Nvidia’s stock sell-off is a near-term headwind to the broader markets that should be respected way more than it is. Arya gets at it a bit in his note, but it warrants further amplification.
Here is a stock truly beloved by Wall Street and Main Street — for real, fundamental reasons such as the AI explosion powering demand for super chips — losing ground. It’s one of the clearest signs yet that investors think stocks have come on too hard and too fast this year against a backdrop of higher for longer interest rates.
Moreover, the price action suggests investors who are actively seeking new reasons to buy stocks at peak valuations are coming up empty. Now, they may simply be waiting to buy top names like Nvidia at cheaper prices.
That wait-and-see mindset is what the pros are doing with Nvidia’s stock and other stocks with a high valuation but well-understood investment thesis.
And it’s not like we haven’t seen Nvidia leading the broader market lower before — it happened last summer!
Evercore ISI strategist Julian Emanuel correctly pointed out that Nvidia’s stock did next to nothing from July 2023 to October 2023 (chart below). It ended up being the catalyst that brought the S&P 500 lower.
Bottom line: For the broader market to get its mojo back, its favorite stock has to get its mojo back.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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