After the stock price plummeted, traders are closely watching the key level of $100 for NVIDIA
Analysts believe that the main reason for NVIDIA's recent decline is still concerns about the sustainability of the company's massive spending in AI, and there may not be much positive news to drive it in the short term. However, analysts remain optimistic about NVIDIA's fundamentals and long-term prospects, implying the need for more patience
NVIDIA, the leader in AI stocks, experienced a sharp drop on Tuesday, with its market value evaporating a record $279 billion. Media reports indicate that traders are anxiously searching for the next support level for NVIDIA.
Jay Woods, Global Chief Strategist at Freedom Capital Markets, believes that $100 is a key level for NVIDIA's stock price, which is approximately the level of last month's lowest closing price. NVIDIA's stock opened on Wednesday with a 3.3% decline, but later rebounded by 1.38% to $109.48.
Woods stated:
"I don't want to see the stock hit new lows. If it breaks the low point of August, it will truly indicate that at least from a technical perspective, the situation has changed. I believe the stock will find support around $100 and then consolidate for a period of time."
In the four trading days before Wednesday, NVIDIA fell by 16%, mainly due to the chip manufacturer's earnings falling short of high expectations. In addition, investor anxiety was heightened by two research reports released on Tuesday warning about the company's spending on artificial intelligence. More bad news came after the market closed on Tuesday, with reports that NVIDIA had received a subpoena from the U.S. Department of Justice for an antitrust investigation.
Michael Kirkbride, Portfolio Manager at Evercore Wealth Management, pointed out that the issue facing NVIDIA's stock is the lack of foreseeable events that could bring positive momentum.
He said:
"We are in a bit of a blank period now, the earnings season has ended, and there will be a lot of economic data released this month. There is a lot of caution about this. When you are in a trading vacuum, the market becomes very short-term oriented, turning into a preemptive selling market."
After months of turbulence, NVIDIA's significant decline has dragged down global chip manufacturers and risk assets. Tuesday's drop was the seventh time in two months that the stock had fallen by more than 6%. Data shows that NVIDIA's 30-day volatility has also reached its highest level since mid-2022.
Investors are reviewing NVIDIA's performance from last month, looking for possible bottoms. In August, NVIDIA experienced a pullback, with the stock falling 27% from its peak in June, then rebounding to a level less than 5% from its record high. The reason for the previous decline was believed to be concerns about the macroeconomy and the sustainability of massive spending on artificial intelligence, which are now resurfacing.
On Tuesday, research reports from J.P. Morgan Asset Management and BlackRock Investment Institute focused on the issue of NVIDIA's largest customers receiving relatively small returns after investing hundreds of billions of dollars.
Michael Cembalest, Market and Investment Strategy Chairman at J.P. Morgan, stated that in the next 12 to 18 months, NVIDIA needs to demonstrate broader demand from corporate clients, rather than just customers like OpenAI who spend on training new models, to prove that the massive spending on AI technology is justified At the same time, Jean Boivin, who leads BlackRock Investment Institute, stated that the construction and enhancement of data centers usually take "several years, not just a few quarters," so investors need to be patient.
However, Boivin mentioned that investors should continue to be overweight in AI stocks, as the recent sell-off in the tech sector "implies room for rebuilding positions."
Both Woods from Freedom Capital and Kirkbride from Evercore WM are optimistic about NVIDIA's long-term prospects. Woods believes that there is no reason to panic about this week's decline, while Kirkbride mentioned that there are no issues with the company's fundamentals or earnings reports.
Kirkbride said: "We are still long-term holders, haven't heard any news that changes the story, whether it's about NVIDIA or its customers and their spending plans. We are buying now."
Although NVIDIA ranks only third in the S&P 500 index with a weight of 6.1%, it has become a major driver of the benchmark this year. Since January, the stock price of this chip manufacturer has been leading the broader market trend, and this week's sharp decline does not bode well for the outlook of the S&P 500 index