Investors aggressively bought on dips before the financial report, NVIDIA rose by 17% in four days, increasing its market value by $420 billion

For NVIDIA, the past six weeks have been difficult. The company's market value has hit a record low, followed by drastic fluctuations in stock prices. However, with the recent improvement in market sentiment, some investors actively bought the dip, and in the past four trading days, NVIDIA's stock price has surged by 17%, adding nearly $42.4 billion to its market value.

As of the close on Tuesday, NVIDIA's stock price is still about 17% lower than the historical high set on June 20. In June this year, NVIDIA briefly surpassed Microsoft to become the world's most valuable company.

Analysis indicates that this earnings season, there have been many positive news related to NVIDIA from super large-scale enterprises. Looking at the earnings of large tech stocks this quarter, some of NVIDIA's biggest customers - Microsoft, Amazon, Google's parent company Alphabet, and Meta - have all expressed plans to continue investing in AI infrastructure.

However, the impact of arbitrage trading has been significant, to the extent that the market did not reflect the above positives. Now that this technical pressure has eased, the market has returned to fundamental stories, which is the reason for NVIDIA's rise.

The significant rebound of NVIDIA caught options traders who bet on its stock price continuing to fall off guard. The cost of protection against a 10% decline in the stock in the next 60 days is close to the highest level since May 2023, compared to profiting from a 10% increase in contracts.

Of course, for a stock that has risen more than 10 times in 15 months, followed by a drop of over 30% from its historical high, a 17% increase does not eliminate all concerns. Investors are still nervous about the health of the U.S. economy and the wisdom of tech companies investing billions of dollars in artificial intelligence over the next few years with little to no profit.

However, at present, the previous sharp decline of NVIDIA has attracted a large number of buyers at low prices. From hedge funds to retail investors, they are optimistic about the long-term development trajectory of artificial intelligence and are positioning themselves in NVIDIA before the company releases what is expected to be a solid earnings report later this month.

The previous sell-off has brought NVIDIA's valuation down to levels that may be more attractive to investors. Currently, NVIDIA's stock price is about 36 times future earnings, significantly lower than the approximately 44 times in June. In comparison, the forward P/E ratio of the Nasdaq 100 index is 25 times. Therefore, some market participants point out that even with expected competition in the future, NVIDIA's current valuation does not seem expensive.

The significant rebound of NVIDIA has also driven a broader market rally. During this period, NVIDIA contributed 22% to the S&P 500 index's gains, far exceeding the contribution of any other single stock. On Tuesday, apart from NVIDIA, other semiconductor companies that have recently been heavily sold off also attracted inflows of funds. Broadcom's stock price rose by 5.1%, while Applied Materials, AMD, and Qualcomm all saw their stock prices rise on Tuesday.

However, it is worth noting that NVIDIA's founder and CEO Jensen Huang has been continuously selling company stocks recently, cashing out over $500 million in the past two months. Huang is not the only insider selling stocks. In the first half of 2024, company executives and directors sold stocks worth over $700 million, an amount that exceeds any other period in the company's history