Business Maverick

Business Maverick

AI boom gets fresh gut check as Nvidia drops most since January

AI boom gets fresh gut check as Nvidia drops most since January
Nvidia headquarters in Santa Clara, California, U.S., on Tuesday, Feb. 23, 2021. Nvidia Corp. is expected to release earnings figures on February 24.

Investors riding the rapid ascent of the artificial intelligence theme are experiencing a hiccup as shares of Nvidia Corp. and other major players slip after a powerful rally. 

Nvidia fell 5.7% on Wednesday, the most since 30 January, after the chipmaker briefly reached a $1 trillion market cap earlier this week. The stock’s 250%-plus gain from an October low likely provided an attractive opportunity to pocket some gains, with board member Tench Coxe among people who recently took some money off the table. AI software firm Inc. fell 9% on disappointing sales forecast, paring its gain for the year to just under 260%.

Wall Street has been obsessed with everything AI this year, with Nvidia’s blowout revenue forecast adding fuel to the frenzied rally. But lofty valuations — Cathie Wood says it’s priced ahead of the curve — are a reason for caution in the still nascent industry. 

Cracks appeared in Asia as well, with Taiwan Semiconductor Manufacturing Co. on track for a third-straight day of losses while Tokyo-listed Advantest Corp. and South Korea’s SK Hynix Inc. were down for a second day. Shares of the three Nvidia suppliers have climbed this year amid the AI buying frenzy. 

Even after its latest dip, Nvidia is trading at 23 times estimated sales for the current year. That compares with less than 15 times for both Lattice Semiconductor Corp., which has the second-highest valuation on the Philadelphia Semiconductor Index, and, the small cap whose ticker is “AI”. 

The AI faithful are unlikely to be shaken by a few down days, however. Nvidia co-founder and Chief Executive Officer Jensen Huang, whose personal fortune has grown by $20 billion this year according to data compiled by Bloomberg, says companies that refuse to take full advantage of the opportunities provided by AI “will perish”.

Nvidia has 49 buy recommendations, more than all but four stocks on the Nasdaq 100. The stock has seen a proliferation of bullish bets in the options market, with the highest trading volume on Wednesday in July $500 and $550 calls, which bet on a 32% and 45% increases in the stock respectively within the next seven weeks.

“At the current moment, the AI boom is shifting the financial fortunes of one company: Nvidia,” Vital Knowledge’s Adam Crisafulli wrote in a note to clients. “Every company on the planet is talking about how they’re AI plays, but only NVDA is seeing a stairstep shift in its income statement because of the technology.” DM


Comments - Please in order to comment.

Please peer review 3 community comments before your comment can be posted

MavericKids vol 3

How can a child learn to read if they don't have a book?

81% of South African children aged 10 can't read for meaning. You can help by pre-ordering a copy of MavericKids.

For every copy sold we will donate a copy to Gift of The Givers for children in need of reading support.

A South African Hero: You

There’s a 99.8% chance that this isn’t for you. Only 0.2% of our readers have responded to this call for action.

Those 0.2% of our readers are our hidden heroes, who are fuelling our work and impacting the lives of every South African in doing so. They’re the people who contribute to keep Daily Maverick free for all, including you.

The equation is quite simple: the more members we have, the more reporting and investigations we can do, and the greater the impact on the country.

Be part of that 0.2%. Be a Maverick. Be a Maverick Insider.

Support Daily Maverick→
Payment options