Why Nvidia’s record high was followed by a $220B sell-off

Nvidia stock closed at a record high on Monday, its first since November, as investors anticipated CEO Jensen Huang’s keynote at CES, igniting excitement around artificial intelligence advancements.

During his presentation to an audience of more than 6,000 in Las Vegas, Huang articulated a vision he described as the “era of physical AI.” He stated, “The ChatGPT moment for general robotics is just around the corner,” emphasizing the untapped potential of AI in physical applications like Nvidia’s Cosmos platform. He also highlighted partnerships with major automotive companies, including Toyota and Volvo, utilizing Nvidia’s DRIVE Hyperion platform for next-generation autonomous vehicles. According to Huang, building autonomous vehicles, akin to all robots, necessitates three computers: one for training, one for simulation, and one in the vehicle, all powered by Nvidia.

Investor enthusiasm helped drive Nvidia’s stock to new highs following Huang’s bold claims about the future of humanoid robots and self-driving cars. However, a “sell the news” response emerged when Wall Street opened the following day, resulting in a $220 billion decline in market capitalization, marking Nvidia’s worst drop in four months. This pattern of reaching record highs followed by sharp corrections is familiar to Nvidia investors.

This pattern previously occurred after Nvidia’s earnings release on November 20, when the stock climbed above $150 for the first time, only to suffer a subsequent 13% decline. Similarly, a surge to $140 on June 20, 2024, resulted in a 27% sell-off, allowing Microsoft to reclaim the title of the world’s largest stock. A disappointing jobs report in February 2024 led to another situation where Nvidia opened at a new record, only to experience its worst return in 10 months and a later pullback of 20%. Following an earnings announcement on August 23, 2023, that lifted Nvidia’s stock to a split-adjusted $50, the stock frustrated investors, trading sideways for four months.

Despite these fluctuations, Nvidia remains a dominant player in the current bull market, a fact not lost on investors. Paul Meeks, chief investment officer at Harvest Portfolio Management, discussed the company on Yahoo Finance’s Morning Brief, suggesting that a future slowdown in Nvidia’s growth rate would prompt him to sell. “If you wait for the year-to-year growth slowdown, you’re going to [be selling] late. So I’ll be looking for that sequential drop in the growth rate,” Meeks remarked.

When asked about the possibility of Nvidia becoming a $4 trillion company this year, Meeks stated, “I don’t think I’m bold enough to say that’s definitely going to happen,” but acknowledged that it seems inevitable over the next couple of years.

In a reflection of investor expectations, Nvidia’s significant price drop after Huang’s keynote on January 7 marked its worst day since September 3. Despite Huang’s compelling discourse on advances in robotics and AI, many investors left wanting more, leading to the sharp decline. This sentiment was discussed in a Yahoo Finance interview with tech analyst Dan Ives, who provided insights on Nvidia’s performance and the tech landscape more broadly.

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Featured image credit: Nvidia