Shares of AI chipmaker Nvidia plunged on Wednesday, dropping by more than three percent in early trading — for a total slide of over five percent in the past week.
Other major AI players fell as well, including Google, Meta, and Tesla. AI software company Palantir’s stock fell by nearly nine percent this morning.
Nvidia is particularly interesting, though, because while those other companies mainly produce software, Nvidia has been making bank by selling the hardware powering the AI industry’s explosive ascent. If the AI industry is a gold rush, then Nvidia is selling shovels — and when the shovel seller starts to struggle, everybody gets nervous.
Analysts were left perplexed by the selloff, casting around for specific causes. Could muted enthusiasm and AI data center Coreweave’s 38 percent collapse post Q2 earnings be coming after the AI industry’s top performers?
Nvidia’s shares fell after Reuters reported that the firm was working on a new generation AI chip for the Chinese market, which could potentially outperform its H20 workhorse.
There are also certain signs of internal shakiness, with CEO Jensen Huang recently 150,000 shares for tens of millions of dollars last week. However, the sale was planned in March, and was triggered by hitting predetermined parameters, such as price and volume.
In other words, it’s not entirely clear what’s causing the selloff. Nvidia and its ilk are still up considerably if you zoom out; both Nvidia and Palantir hit all-time highs earlier this month. Palantir alone rose more than 150 percent since April.
Could the latest selloff be a market correction, a reality check in light of some sky-high valuations?
There has been considerable talk of the AI industry showing signs of a dot com era-style bubble. Even OpenAI CEO Sam Altman himself acknowledged last week that we’re in a “phase where investors as a whole are overexcited about AI.”
How long Nvidia’s drop in share price will last remains to be seen. The company’s meteoric rise has repeatedly been met by bullish investors buying the dip, sending it to all-time highs.
Nvidia will be reporting its second-quarter earnings a week from now. Investors expect strong Q2 results, and given enormous sales and continued optimism surrounding AI, it’s not a stretch to assume they’ll be satisfied.
If anything, investors are as optimistic as ever, suggesting that the AI industry’s gravy train isn’t likely to stop any time soon.
“NVDA is now the most under-owned large-cap tech stock,” Morgan Stanley analyst Erik Woodring wrote in a note this week, as quoted by Yahoo Finance.
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