NVIDIA Corp (NASDAQ:NVDA, ETR:NVD) shares fell again on Monday, marking the third day of losses for the maker of AI chips.
With its shares falling another 5% to about $120 in the early afternoon, NVIDIA’s stock entered correction territory, defined as a selloff of more than 10% but less than 20% from a recent end-of-day peak.
NVIDIA last Tuesday surged to a record high of about $135 per share and briefly overtook Microsoft as the world’s most valuable company with a market capitalization of about $3.4 trillion.
On Monday, NVIDIA stock was down about 12% from Tuesday’s record close, with its market capitalization falling to about $2.9 trillion.
XTB research director Kathleen Brooks wrote that, interestingly, the sell off in NVIDIA has not been followed by declines in other Magnificent Seven stocks on Monday.
“Apple and Microsoft, the other tech megaliths, are higher so far on Monday, and Tesla is the best performer in the Nasdaq 100 index on Monday and is up nearly 3% at the start of this week,” she wrote.
She attributed the pullback on NVIDIA to several factors, the first being the rebalancing of tech funds.
“The recent volatility in NVIDIA’s share price, which saw it become the most valuable company in the world before pulling back, meant that there was a decent amount of rebalancing going on for one of the world’s biggest ETFs, which may have added to the volatility in NVIDIA's share price,” she wrote. “This will have a short-term impact on NVIDIA's share price.”
Brooks also pointed to retail traders taking profits as markets move into the slower summer months.
“After such a strong run in the first half of this year, its stock price is higher by 150% since January, it is no wonder that retail traders and speculators are taking profits,” she wrote.
Additionally, Brooks pointed to questions about NVIDIA being overvalued, noting that there is “no denying that Nvidia is starting to look a bit rich.”
“While we don’t deny that NVIDIA is delivering on the earnings front: it is expected to deliver $28 billion of revenue in Q3, and operating profits of $18.5 billion, investors must pay up for these earnings,” she wrote. “Thus, there is less room for Nvidia to slip up when it delivers its earnings reports, which may worry some investors.”
Brooks concluded: “Tech is a multiyear theme, especially AI, thus we do not expect NVIDIA's stock price to fall off a cliff, but a pullback is to be expected.”