Nvidia (NVDA) stock fell more than 9% in pre-market trading on Monday as the global stock market crash accelerated and concerns about a potential U.S. recession rippled through global markets. Stock markets from Asia to Europe fell sharply and bond yields fell as investors flocked to safe-haven assets.
The turmoil has fueled speculation that the U.S. Federal Reserve will need to cut interest rates soon to boost growth and stabilize the economy.
Nvidia’s (NVDA) “relief rally” on Wednesday didn’t last long. Stocks hit their lowest since May and fell as much as 7% on Friday, erasing gains from earlier in the week amid widespread turmoil across the tech sector.
The Nasdaq (^IXIC) has entered correction territory due to signs of economic slowdown as well as concerns that some big tech companies are overspending on AI.
But the latter element, the promise of further investment in AI, should be seen as a “catalyst” for Nvidia and other AI chipmakers.
Wall Street experts told Yahoo Finance this week that AI trading is far from over and were quick to view the recent pullback as an opportunity to scoop up shares. While big tech companies are struggling to realize the fruits of AI, they remain committed to investing in chips for the long term.
“Given the broader market outlook, this is a good buying opportunity,” Winthrop Capital Management’s Luke Stone told me, following strong earnings forecasts for NVIDIA competitor AMD (AMD). Ta.
“We’re seeing this line between chipmakers and their customers. They’re having to invest more and more in their products, and they’re really struggling,” Winthrop added. .
In this quarter alone, Meta (META), Alphabet (GOOG, GOOGL), and Microsoft (MSFT) posted more than $40 billion in spending. Amazon (AMZN) spent $30 billion in the first half of this year, and plans to spend even more in the second half. Everyone is saying that most of that money will go to AI.
That’s not what the market wanted to hear. Shares of Amazon and Microsoft ended the week lower, similar to last week’s decline in Alphabet stock, as investors revealed that AI trading has become a show-me story.
But what’s worrying for hyperscalers is good news for Nvidia and its peers.
“We continue to see the (capex) guidance actually increase significantly, and that’s what’s really important,” Bernstein managing director Stacey Rasgon told Yahoo Finance. . “People are worried about sustainability, but at least for now spending seems to be holding up.”
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And that should boost Nvidia’s sales, as Meta, Amazon, Google and Microsoft account for more than 40% of the chipmaker’s revenue.
CFRA’s Angelo Gino explained, “Concerns that the company will not be able to maintain its earnings trajectory over the next 12 months or so are now beginning to ease.” “We think NVIDIA will deliver great results and that will be a catalyst for this space.”
Morgan Stanley’s Joseph Moore argued in a note to clients earlier this week that Nvidia’s stock decline represents a “good entry point,” returning the chipmaker to a “top pick.”
“Our understanding is that while the market takes a very ambivalent view of some of the hyperscale comments, there is a clear desire on the part of customers to continue to devote resources to developing multimodal generative AI. ” Moore wrote.
Dan Morgan, portfolio manager at Synovus Trust, compared Nvidia and other AI infrastructure stocks to suppliers that thrived during the gold rush. “Do you want to be a gold digger or a person who sells equipment to dig gold?” he said.
Nvidia ended the week down 5% and is down about 26% from its all-time high. Despite the pullback, the stock is still up 116% since the beginning of the year.
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Three times a week, Yahoo Finance Executive Editor Brian Sozzi has insightful conversations and chats with some of the biggest names in business and markets on the Open Bid Podcast. Find more episodes on our video hub. Watch on your favorite streaming service. Or listen or subscribe on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
In the opening bid episode below, Drew Pettit, Citi’s US strategy director, warns against AI trading for short-term traders.
Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Have a tip about a deal, merger, activist situation, or more? Email seanasmith@yahooinc.com.
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