Is Nvidia's stock price going to stall?
On Friday local time, the three major indexes of the US stock market remained calm, but the stock of AI chip giant Nvidia plummeted significantly. The stock fell 5% during trading and ultimately closed down 3.22%. Its market value shrank to $3.11 trillion, ranking third in the US stock market, lower than Microsoft's $3.34 trillion and Apple's $3.18 trillion.
It is worth noting that on Thursday and Friday, Nvidia experienced a cumulative decline of 6.65%, with a market value evaporation of $221.6 billion, equivalent to approximately RMB 1600 billion. On Tuesday, Nvidia briefly replaced Microsoft as the world's most valuable company.
Analysts have pointed out that the adjustment of Nvidia's stock price is related to profit taking. Prior to this adjustment, Nvidia's stock price had risen by more than 170% this year, and some funds chose to cash out at high levels. The second is related to the continuous reduction of holdings by NVIDIA CEO Huang Renxun. In the past five trading days, Huang Renxun has cumulatively reduced his holdings by 600000 shares, cashing out approximately $79.38 million, equivalent to approximately RMB 576 million.
Some people jokingly said, "This is the most expensive reduction in history. Huang Renxun cashed out less than 600 million yuan, but the company's market value evaporated by 1.6 trillion yuan."
At present, Nvidia has become the stock with the largest short selling volume and the largest change in short selling volume in the US stock market. Next, where will Nvidia's stock price go?
Plummeted by 1600 billion yuan
On Friday, the three major US stock indexes fluctuated slightly, with the Dow Jones Industrial Average slightly up 0.04% and the Nasdaq and S&P 500 Index falling 0.18% and 0.16% respectively. The trend of technology stocks has diverged, with Microsoft and Google rising 0.92% and 1.89% respectively, both reaching new closing highs with market values of $3.34 trillion and $2.22 trillion, respectively. Apple fell 1%, with a market value of $3.18 trillion.
On that day, Nvidia's stock price plummeted significantly, with a maximum intraday drop of nearly 5% and a final closing of 3.22%. The full day transaction volume reached $83.2 billion, and its market value also shrank to $3.11 trillion, ranking third in the US stock market, lower than Microsoft and Apple. On Thursday and Friday, Nvidia experienced a cumulative decline of 6.65%, with a market value evaporation of $221.6 billion.
Prior to this round of adjustment, Nvidia's stock price had been soaring and surpassed Microsoft on Tuesday, taking the throne as the world's most valuable company with a market value of $3.34 trillion. Since the beginning of this year, as of Tuesday's close, Nvidia's stock price has risen by 173.81%. From mid October 2022 to Tuesday, Nvidia's stock price has increased by more than 10 times, with a market value growth of over $3 trillion.
The recent decline in stock prices over the past two trading days is also related to the continuous reduction of holdings by Nvidia CEO Huang Renxun. According to documents disclosed by the US Securities and Exchange Commission (SEC), Huang Renxun reduced his holdings of 120000 shares of the company's stock daily on June 21, June 18, June 17, June 14, and June 13, totaling 600000 shares, corresponding to a market value of approximately $79.38 million.
Huang Renxun's latest round of stock sales had already been announced. At the end of March this year, Nvidia released a detailed quarterly financial report (Form 10-Q), which mentioned that Huang Renxun had set up a 10b5-1 stock sale plan on March 14 this year, which would sell up to 600000 Nvidia shares with a total value of over $700 million by the end of March 2025. However, when setting up the stock sale plan, Nvidia had not yet conducted a stock split. On June 10th, Nvidia split its stocks in a one to ten split, which also means that its cash out behavior starting from June 13th may continue for a period of time.
Analysts have pointed out that Huang Renxun's stock sales may have a certain impact on market confidence. However, these stock sales are part of their executive compensation plan and belong to restricted stock units (RSUs) and performance stock units (PSUs), which the company's CEO often sells when allowed. Compared to Huang Renxun's total shareholding, the shares he has recently sold can be considered a drop in the bucket.
Will it continue to decline?
According to reports, Nvidia has become the stock with the largest short selling volume and the largest change in short selling volume in the US stock market. Next, how will the company's stock price operate?
Some traders have stated that there is no fundamental reason behind the recent sell-off in the past two days, but this does highlight the astonishing speed of the stock's previous climb, making it vulnerable to sudden pullbacks.
Russ Mould, Investment Director of broker AJ Bell, said, "Nvidia has not had any problems, this is just a common fluctuation in the stock market, and for such a large company, it may cause its market value to evaporate or even increase by hundreds of millions or even billions of dollars."
Bank of America stated that "Nvidia's sharp rise makes it vulnerable to profit taking, but we believe any volatility can be short-lived." Bank of America reiterated its buy rating, target price of $150, and stock's preferred position. In addition, Ben Reitzes, an analyst at Wall Street consulting firm Melius Research, raised Nvidia's stock price target from $125 to $160 on Friday, marking their fifth increase this year.
However, Patrick Moorhead, founder and CEO of Moor Insights&Strategy, said investors should be wary of signs of a pullback in the stock. He believes that Nvidia's dominant position will not change in the next six to nine months, but investors should focus on "downstream profitability that people in the ecosystem are achieving or not achieving.". He explained: "These are software companies like Adobe, Salesforce, SAP and ServiceNow, because if these enterprises and consumers do not pay more for these new AI functions, the whole train of making money will suddenly stop, as we saw in the Internet foam."
Moorhead warns that intensified competition may also become a headwind for pricing power, as Nvidia not only competes with "commercial silicon suppliers" such as AMD and Intel, but also with Amazon's AWS, Microsoft's Azure, and Google's "local suppliers".
Other investors who are not entirely optimistic about Nvidia's stock price include Paul Wick, a fund manager at Seligman Investments. He has been reducing his holdings in Nvidia stocks in recent weeks. Paul Wick stated that 60% to 70% of Nvidia's revenue comes from its top ten clients, which makes Nvidia inherently much more risky than Microsoft or Google.
According to foreign media reports, Nvidia's competitor, AI chip startup Cerebras Systems, has secretly submitted IPO documents to US securities regulatory agencies and applied to be listed on the NASDAQ Stock Exchange.
Cerebras is a company that specializes in producing powerful computer chips designed to handle AI and high-performance computing. In the past year, Cerebras has repeatedly made headlines, claiming that its chips are not only more powerful than Nvidia's chips, but also more cost-effective.
Cerebras' flagship product is the new WSE-3 processor, which was released in March and built upon the WSE-2 chipset, which debuted in 2021. The WSE-3 chip is expected to be launched later this year. It is built on advanced 5-nanometer technology, with 1.4 trillion more transistors than the previous generation of chips, over 900000 computing cores, and 44G onboard static random access memory.
Cerebras states that the number of cores in WSE-3 is 52 times that of a single Nvidia H100 graphics processor. Cerebras stated that these specifications are sufficient to make WSE-3 compete with Nvidia's best graphics processors. Cerebras also claims that its chips have superior performance and can process AI workloads faster and more energy-efficient, thereby improving the efficiency of workloads.
In addition, it has been reported recently that Huang Renxun and executives held a series of meetings at the end of last year to discuss an increasingly concerning issue, namely whether Nvidia's largest customers will exhaust data center space to install Nvidia chips, which may affect Nvidia's sales. Huang Renxun does not hope that the company may one day decline like former hardware giants like Cisco. He is pushing the company to enter the software and cloud services fields and compete with its biggest customers.