There was no clearly very negative news from Nvidia on Tuesday. Nvidia's stock price opened lower on the same day, and the intraday decline widened to 6.7% at one point, closing down 4.35%. Although the market generally anticipates that Nvidia's revenue is expected to be boosted by soaring demand from the data center business, questions are rising one after another, and some traders have decided to lock in profits before earnings are released.
The day before the big earnings report, the strong rise in Nvidia's stock price since this year came to an abrupt end. Nvidia, which is in the C position in the field of artificial intelligence, suddenly plummeted. There is only one core reason — it's too expensive.
On Tuesday EST, Nvidia's stock price opened low. The intraday decline widened to 6.7%, hitting the $677 line. The closing decline narrowed somewhat, closing down 4.35%, closing at $694.52, with a market capitalization of $1.72 trillion.
Even after experiencing Tuesday's sharp drop, Nvidia's stock price has soared by about 40% since this year. A few days ago, its market capitalization surpassed giants such as Amazon and Alphabet one after another to become the third-largest company by market capitalization in the US, after Microsoft and Apple.
There was no clearly very negative news from Nvidia on Tuesday. The media said its stock price plummeted mainly because investors were worried about whether Nvidia's quarterly results could justify its overvaluation, and some traders decided to lock in profits before earnings were released:
An industry insider commented, “Today we are seeing a major adjustment in bullish stocks in the field of artificial intelligence. Although the topic of artificial intelligence is still around, adjustments are long overdue; this is definitely a defensive day.”
Others pointed out that in addition to the performance report, investors are also particularly curious to know how the company's CEO, Hwang In-hoon, views Nvidia's demand development for the rest of the year. “Any sign that the AI boom may slow down could cause Nvidia to drop sharply and reverse the stock price trend, so it makes sense for traders to be fearful before the earnings report is released.”
Dan Ives, a well-known analyst at Wedbush, said that although 2023 is the beginning of the largest technological transformation since the birth of the Internet in the 90s of the last century, investors need to see a continuous increase in corporate spending and show a growth path in 2024 and beyond to prove the rationality of overvaluation.
Nvidia will announce quarterly results after the US stock market on February 21. Previously, Nvidia's financial results for several consecutive quarters had far exceeded expectations. Currently, the market generally anticipates that Nvidia's revenue is expected to be boosted by soaring demand from the data center business, and that AI-related businesses will remain strong, especially when Meta, Tesla, etc. are vigorously purchasing GPUs.
Analysts at Morgan Stanley expect that Nvidia's Q4 earnings report will continue to show strong profit levels. Earnings are likely to once again exceed market expectations. At the same time, benefiting from the advent of B100 and a clear business layout, it is expected that revenue guidance will remain optimistic.
Although Nvidia's stock price soared to a record high this month and led to an increase in the US stock market as a whole, its forward price-earnings ratio only returned to the level before the release of the previous earnings report in November last year. Benefiting from profits, Nvidia's valuation is getting lower. It's also the reason why some people in the market think Nvidia is still rising.
However, with regard to the optimistic outlook on Nvidia's earnings report mentioned above, market questions are rising one after another:
Frank Lee, head of technology research at HSBC, said: “The market may be a bit hesitant. Whether Nvidia can provide strong enough guidance to revive the market and push the stock price to a higher level.”
Some traders said, “If Nvidia only meets expectations or slightly exceeds expectations, it is difficult for the stock price to rise. Nvidia needs to greatly exceed expectations before the stock price can rise.”
An asset management company mentioned that although people are betting that Nvidia will publish reliable profit and performance forecasts, one thing to keep in mind is that Nvidia does not always respond well to outstanding performance. Sometimes the market's expectations are so high that they get a stock price response from selling the facts.
More pessimists believe that Nvidia's earnings report, whether good or bad, will put an end to the rise in US stocks. The reason is that any company with a high bias in call options is likely to withstand greater selling pressure. Currently, call options are frantically betting on AI stocks such as Nvidia. Once Nvidia releases financial reports, the implied volatility of the entire options market may decrease, and the price of individual Nvidia-related stocks will fall, leading to a correction in the US stock market.
According to data from options analysis company ORATS, according to options market pricing, Nvidia fluctuated by plus or minus 11% after the announcement of the earnings report. If a fluctuation of this magnitude occurs, it means that Nvidia's market capitalization will be about 180 billion US dollars. This will be one of the biggest fluctuations in the single-day market value of individual stocks in US stock history.
Negative news about Nvidia on Tuesday was that the media said that Microsoft is quietly working to reduce its dependence on Nvidia and develop alternatives to network cards. The network card developed by Microsoft is similar to Nvidia's ConnectX-7. Development may take more than a year. If successfully developed, it can not only save Microsoft money, but also reduce the time for OpenAI to use Microsoft servers to train large AI models. It should be clarified that during Nvidia's previous high rise, such news did not hinder the upward momentum of stock prices.
Nvidia's decline on Tuesday caused many chip stocks and AI concept stocks to follow the decline:
Chip stocks generally fell for three days and outperformed the market on Tuesday. The Philadelphia Semiconductor Index and semiconductor industry ETF SOXX fell more than 2% in early trading and fell more than 3% in midday trading, closing down nearly 1.6% and 1.7% respectively. Arm fell 10% at the beginning of the market and closed down 5.1%. AMD had an intraday decline of 6.8% and closed down 4.7%.
Overall, AI concept stocks continued to fall sharply and outperformed the market over the past few days. Ultramicrocomputers, which closed down 20% after hitting a record high last Friday, fell 13.8% in midday trading and closed down nearly 2%. C3.ai fell more than 8% in the intraday period and closed down nearly 5.9%. Adobe fell more than 3% at the beginning of the session and closed down nearly 0.9%. SoundHound AI turned up after falling more than 4% in early trading and closed up more than 4%, bucking the trend.
Editor/Somer