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All eyes are on Nvidia stock, so what’s going on?

Nvidia shares recovered on Tuesday, ending a three-day slide that surprised many investors and caused a loss of more than $400 billion in market value.

Nvidia shares rebounded on Tuesday, ending a three-day downtrend that surprised many investors and caused a loss of more than $400 billion in market value.

Earlier last week, Nvidia overtook Microsoft as the most valuable publicly traded company on Wall Street. Then it fell 13% in three days, the worst drop since 2022. Because Nvidia has grown so large, fluctuations in its stock have added weight to the S&P 500 and other indexes.

Any stock that rises as much as Nvidia has – up more than 1,000% since fall 2022 – is vulnerable to some of its investors selling shares to lock in profits. That earlier surge makes a 13% drop in three days seem like a relative pittance.

On Monday, Nvidia shares rose 6.8%, giving the company a market value of $3.10 trillion, behind Microsoft at $3.35 trillion and Apple at $3.21 trillion.

These three companies and several others are responsible for much of the S&P 500’s recent returns. Investors prefer a market where many stocks share in the earnings.

Demand for Nvidia’s chips for artificial intelligence applications is almost insatiable. The company has also played a major role in the US stock market’s recent record runs, even as economic growth slows under the weight of high interest rates. But the AI ​​boom is progressing at such a rapid pace that it has raised fears of a potential stock market bubble and over-expectations among investors.

Derren Nathan, head of equity research at Hargreaves Lansdown, said in a statement that while it is important to consider the decline in Nvidia shares in recent days, it is also important to look at the bigger picture.

“Shares are still up 190% over the last 12 months, so it’s no surprise that some investors are taking some profits,” he said.

Nathan isn’t worried about any potential impact on wider spread either. “Although Nvidia had to sneeze, the broader market didn’t catch a cold, and for the rest of the Magnificent 7, there was a mix of less extreme moves in both directions,” he said.

The “Magnificent Seven,” which includes Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla, are a small group of stocks that account for a large portion of the total return of the U.S. stock market.

Some critics say Nvidia still looks expensive. Its stock is trading at 73 times the profit it generated over the past 12 months, making it look much more expensive than the broad S&P 500 index, where companies trade at just 26 times their total profits. That alone seems expensive to skeptics who say the broad U.S. stock market looks expensive by historical standards.

The advantage for Nvidia is the possibility of continued, incredible growth and that the company is ushering in a new era that its proponents say will transform the economy.

Based on expected earnings over the next 12 months, Nvidia trades at a still expensive but more reasonable price-to-earnings ratio of about 40. And if its generative AI hardware deployment is only in the second year of a potentially three- to five-year deployment cycle, as Bank of America analysts suggest, the potential growth trajectory could make the company seem even more attractive.

Analysts estimate that the company’s revenue will reach $119.9 billion in the fiscal year ending in January 2025 – about double the revenue in fiscal 2024 and more than four times the previous year’s revenue.


Associated Press business writer Stan Choe in New York contributed to this report.

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