Nvidia’s $279 Billion Wipeout: A Temporary Drop?

Nvidia’s NVDA stock price plunged almost 10%, wiping billions of dollars off its value and sending shockwaves through global markets.

The slump, triggered by weak economic data, was the biggest single-day decline in market value for a US company.

But what will happen next? Is this just a temporary blip or is the stock market darling destined for a rockier ride over the coming months?

In our Nvidia stock analysis, we look at what has caused the NVDA share price to fall and how analysts see the future of Nvidia stock.

Table of Contents Table of Contents

1. Key Takeaways
2. Nvidia Plunge: What Has Happened to NVDA Stock?
3. Future Scenarios: Analyst Views
4. The Bottom Line
5. FAQs
6. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. Nvidia Plunge: What Has Happened to NVDA Stock?
3. Future Scenarios: Analyst Views
Show Full Guide
4. The Bottom Line
5. FAQs
6. References

Nvidia Plunge: What Has Happened to NVDA Stock?

This was the largest-ever single-day decline in market value for a US company, and the impact was felt on stock markets around the world.

Understandably, investors will be asking what happened to Nvidia stock that caused the stock price to plummet so severely.

The problems were triggered by weak US economic data as well as some other issues, according to Russ Mould, investment director at AJ Bell. He said:

“The latest US manufacturing figures weren’t as good as expected, acting like a gust of wind to topple the house of cards and once again put markets into reverse amid fears about the strength of the economy.”

The sell-off appeared to particularly hit the big tech names, suggesting a degree of unease about the longer-term prospects of AI.

Department of Justice Investigation: ‘Little More Than a Glancing Blow’

However, that wasn’t the end of the gloomy Nvidia stock news.

The NVDA stock ended up slipping further in after-hours trading after reports that it had received subpoenas from the Department of Justice as part of an antitrust investigation.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, believes the legal action may complicate Nvidia’s stock price recovery.

“Officials have reportedly subpoenaed Nvidia as they try to establish whether the firm’s dominance in the market has made it difficult for buyers to use other suppliers,” she said.

However, Streeter doesn’t believe the longer-term effects will be that damaging.

“Given the sheer size of the company and its blockbuster quarterly profits, any fines emanating from a probe, are likely to be little more than a glancing blow,” she added.

Prior to these announcements, the most recent Nvidia stock update came at the end of August 2024, when the company announced a record revenue of $30 billion for the second quarter.

AI Outlook: Is This Area Still Attractive?

Of course, the growth potential of Nvidia stock largely depends on the longer-term success of the entire AI area.

Therefore, what is the outlook for AI around the world? Is it still expected to become a dominant force or are there concerns about the amounts companies are spending on this technology?

Well, the global market for AI is estimated to increase from $148.8 billion in 2023 to $1.1 trillion by 2029, according to a study from Research and Markets.

This would see it enjoying a phenomenal compound annual growth rate (CAGR) of 39.7% from 2024 to 2029.

“The North American market for artificial intelligence is estimated to increase from $54.2 billion in 2023 to reach $342.4 billion by 2029, at a CAGR of 36.1% from 2024 through 2029,” it added.

The report suggested the AI market was being driven by a “combination of multiple factors,” including businesses increasingly adopting AI to enhance customer service levels.

“The rise of cloud computing has also played a significant role, providing the necessary infrastructure and scalability for AI applications,” it added.

Meanwhile, Nvidia continues to prove its AI leader status with its new Blackwell platform.

Blackwell will have the most complex AI architecture ever built. It promised to handle the demands of next-generation AI models with up to 1 trillion parameters.

Nvidia’s Blackwell platform is a comprehensive solution that integrates multiple chips, systems, and software and aims to power a new wave of AI projects in various business fields.

Jensen Huang, founder and CEO of Nvidia, said in the company’s latest earnings statement:

“Blackwell samples are shipping to our partners and customers. Spectrum-X Ethernet for AI and NVIDIA AI Enterprise software are two new product categories achieving significant scale, demonstrating that NVIDIA is a full-stack and data center-scale platform. Across the entire stack and ecosystem, we are helping frontier model makers to consumer internet services, and now enterprises. Generative AI will revolutionize every industry.”

Future Scenarios: Analyst Views

Fragility of the Market

According to AJ Bell’s Russ Mould, the near 10% one-day decline in Nvidia’s shares and a 3.3% drop in the Nasdaq index illustrates the fragility of the market.

“It goes to show that everything was not back to normal after markets quickly rebounded from their summer wobble, even though it might have looked fine on the surface,” he said.

The summer panic was triggered by fears of a US recession, he pointed out, which caused markets to go through a rocky period.

“This was compounded by the unwinding of the Yen carry trade where certain investors had borrowed in the low-interest Japanese currency to invest in higher-yielding assets elsewhere, including US tech shares,” he added. “Markets pulled back and we saw a 13% sell-off in the Nasdaq index between late July and early August.”

Classic Shift Towards Safety

Tom Stevenson, investment director at Fidelity International, said: “The tech sector has had a stellar run, but the past month has been rocky.”

He also reflected on the important role that Nvidia now has on the global technology stage, with analysts tracking its every move.

“It has become the single biggest influence on the stock market this year, with a high correlation between movements in its share price and that of the wider market,” he said.

In fact, Stevenson pointed out that the value of the company, which was briefly the world’s biggest, fell by about $750 billion in July and August before regaining it all back. He added:

“We’re seeing a classic shift towards safety, as investors seeking stability look to preserve capital amid market volatility.”

Nothing Has Changed in Nvidia’s Fundamentals

However, Lee Wild, head of equity strategy at interactive investor, insisted that nothing has changed as far as the latest Nvidia stock information is concerned.

He said:

“It’s doing now what it’s done before, it’s just the market has got nervous about AI sector valuations and the pace at which enablers like Nvidia will reap rewards.”

NVDA’s Fall as an Investment Opportunity

Wild is also optimistic about the company’s future prospects.

“Nvidia consistently exceeds market expectations and will likely remain at the forefront of the AI revolution, ensuring it remains one of the favorite ways to play the theme,” he said. “Traders will exploit short-term volatility, while long-term investors might view any pullback as an opportunity.”

While he acknowledged that accurately predicting the path of a major new trend is fraught with danger, he believes the stock will remain a key part of portfolios.

“Nvidia’s popularity and share price history means it will likely remain one of most heavily traded stocks around,” he added.

Where’s Next: A Full-Blown Retreat or Just a Minor Pause?

Ben Yearsley, director of Fairview Investing, doesn’t believe that the recent share price weakness will have a significant impact on valuations.

“Share prices reflect news so a price fall on its own shouldn’t change the outlook,” he said. “The whole sector has probably got ahead of itself in the short term.”

However, he’s unsure of the outlook for NVDA stock and believes only time will tell how significant the fall will be in the long run.

“Valuations were sky high pricing in perfection and there was always going to be bumps on the way,” he said. “Whether this bump ushers in a full blown retreat or is just a pause is anyone’s guess, I’m afraid.”

Teetering on the Brink of AI Apathy

Susannah Streeter, head of money and markets at Hargreaves Lansdown, believes investors appear to be “teetering on the brink” of AI apathy.

She said:

“Concerns are growing that the much-hyped benefits of artificial intelligence powered products and services aren’t yet showing up in a big enough way to justify the huge sums being poured into the technology.”

Unfortunately, this could mean life is getting even more difficult for corporations involved in what is regarded as an exciting area of investment.

“A sharper downturn for the mighty US economy may lead to more firms battening down the hatches and rethinking their capital expenditure plans in support of AI,” she said.

This is causing a rethink about the scale of future revenue streams, Streeter explained, and having an adverse effect on valuations.

“Although clearly this tech juggernaut has much further to run, the speed at which it’s going to go is being questioned.”

Looking ahead, Streeter believes Nvidia is “many marathons” ahead of the chasing pack and benefits from its main customers, which are giants such as AWS and Azure. This should mean there are fewer risks ahead, even though the stock’s valuation is likely to be sensitive to sentiment.

However, she also highlighted a few issues.

“Nvidia has also been investing money in AI firms, and there have been some concerns that it could be giving them preferential treatment when it comes to the wait for its products which have been in short supply,” she said. “These alleged practices could potentially all form part of the DOJ investigation.”

The Bottom Line

No investor wants to see a 10% fall in the stock price of a company they own but it’s important to put this week’s volatility in perspective.

NVDA stock is still trading 123% higher than it was a year ago, and the consensus view of analysts is that it could rise another 30% over the next 12 months.

While the US giant is facing legal hurdles in the shape of the antitrust investigation by the Department of Justice, analysts appear optimistic about its ability to handle the problems.

They point out that it has several major clients, generates billions of dollars in revenue every quarter, and remains upbeat about its future prospects.

Of course, a lot depends on the ongoing popularity of AI and the desire of corporations around the world to embrace this new technology.

Nvidia has established itself as the poster child for this fast-growing sector, but all eyes will be on the stock to see if it can maintain its lead over rivals.

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