Nvidia Slips Into correction Territory As Stock Declines 10%

The market leader in chips, Nvidia, went into “correction zone” after its stock dropped 10% from its most recent closing high. Shares had recovered by Wednesday’s close, when they were only about 8% off the high, according to a CNBC report.

TakeAway Points:

  • Demand for its chips has allowed Nvidia, a manufacturer of graphics processing units, or GPUs, to greatly benefit from the surge in artificial intelligence.
  • However, after a brief 10% decline, the company’s shares were trading at more than $950 per share, their all-time closing high. Down 2% for the day, the stock ended Tuesday’s trading session at $853.54.
  • Aiming to beat Nvidia’s most sophisticated computers, rival chipmaker Intel debuted a new AI chip on Tuesday dubbed Gaudi 3, which is meant to run huge language models.

Nvidia Stock Experience Decline 

The company, which makes graphics processing units, or GPUs, has been a key beneficiary of the artificial intelligence boom, which boosted demand for its chips. Nvidia GPUs are commonly used for compute-intensive AI applications, such as OpenAI’s ChatGPT AI chatbot. Its server chips are also a key component of data centers.

The company’s financial performance has been on the decline in the past year. It reported a 486% jump in non-GAAP earnings per diluted share in the December quarter, citing huge chip demand, thanks to the popularity of generative AI models.

The stock has come under pressure for the past two weeks, however. On Tuesday morning, shares were 10% off their last all-time closing high of $950 apiece, which they hit on March 25. The stock closed at a price of $853.54 on Tuesday, down 2% for the session.

Nvidia’s shares closed up 1.97% on Wednesday. Definitions of what constitutes a market correction vary, but it is generally considered to be a sustained drop of 10% or more from all-time highs. However, Nvidia declined to comment on this story.

Reasons For Decline

It is unclear exactly why the trend has declined at this time. After the shares saw phenomenal growth of more than 200% over the previous 12 months, investors may be taking a profit on the company. Additionally, rival chipmaker Intel also revealed a new AI chip on Tuesday dubbed Gaudi 3, which is intended to enable big language models, the key component of generative AI tools like OpenAI’s ChatGPT.

Intel said the new chip is over twice as power-efficient as Nvidia’s H100 GPU — the U.S. chip giant’s most advanced graphics card —and can run AI models 1½ times faster than Nvidia’s GPU.

Analysts at D.A. Davidson said in a research note that they expect a “shrinking” of the size of AI models, including alternatives like Mistral’s Large model and Meta’s LLaMA system, to drive down demand for Nvidia’s stock over time.

“Although NVDA (neutral-rated) should deliver a spectacular 2024 (and perhaps into 2025), we continue to believe recent trends set up a significant cyclical downturn by 2026,” D.A. Davidson analysts said in the note Tuesday.

“A combination of shrinking models, more steady growth in demand, maturing hyperscaler investments, and increased reliance by their largest customers on their own chips do not bode well for NVDA’s out years.”

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