Has the Nvidia stock train run out of steam?

The semiconductor giant Nvidia (NASDAQ: NVDA) has managed an uncommon rally for a stock already regarded as a blue chip in the last two years, increasing its valuation from $364 billion at the end of 2022 to $3.417 trillion at press time on October 31, 2024.

The company’s performance in 2024 – although overall impressive, as it saw a 185.11% year-to-date (YTD) rise to $137.33 – has given rise to concerns about how much room for growth the chipmaker actually has.

Specifically, although massive, the stock market rise has come in a series of rapid surges, with the more recent ones becoming increasingly short and followed by substantial correction. 

The October rally that saw NVDA hit a new all-time high (ATH) above $143 on the 20th day of the month may, in fact, already be over. It is possible that – much like after the late May, mid-June, and late August highs – a considerable correction is next.

Furthermore, the most recent price action might indicate the correction is already at hand. Trading on Wednesday saw a drop of 1.36% to $139.34 – below the $140 support – and the extended session leading to Thursday witnessed a further 1.50% fall.

Why the Nvidia train might just be heating its engines for a new surge

A possible view of Nvidia stock’s future – and one shared by numerous Wall Street experts – is that there isn’t much reason for concern and that whatever the next short-term move, the semiconductor giant has much upside left. 

As Finbold reported on October 23, 93% of analysts recommend buying NVDA shares and the average forecasted upside amounts to nearly 9% from the press time price. The highest forecast would see Nvidia stock climb even higher and hit $200 within 12 months.

Most of these positive assessments are based on the belief that the artificial intelligence (AI) boom is, at the very least, far from over and possibly even still picking up steam for a true upsurge.

Nvidia, the biggest semiconductor company in the world by market share, has fixed a significant design flaw with its Blackwell chip, which is scheduled to enter proper mass production during the fourth quarter of 2024 and early 2025. 

Thus, Nvidia is well positioned to continue benefiting extensively from the ‘insane’ demand for its products.

Indeed, NVDA stock’s staggering performance can be directly linked to the release of ChatGPT and the proliferation of AI products. Through 2022, Nvidia lost approximately 50% of its value but is now poised to increase it tenfold from the lows reached almost exactly two years ago.

Should the optimistic outlook be correct, the Nvidia stock train might not only still have plenty of steam, but this week may be the best time to buy more Nvidia shares as it could signal new long-standing lows despite the current high valuations.

Why the Nvidia stock train might be nearing a derailment

Simultaneously, this high reliance on the continuation of the AI boom could prove a weakness, considering several other major players – and early 2024 stock market superstars – have come under pressure in recent weeks and months.

On October 30, Nvidia’s biggest competitor, Advanced Micro Devices (NASDAQ: AMD), took a nosedive following its earnings report. 

This development can be seen as particularly concerning for Nvidia as the report was arguably a mixed bag. It showed overall strong results but provided lackluster guidance – not quite a typical trigger for a 10% 24-hour drop for a blue-chip firm.

The harsh reaction to an otherwise solid filing and only somewhat disappointing guidance can be seen as a sign of the mix of uncertainty about the fate of the AI boom and the exceedingly high expectations of some of the leading names in the sector.

Another former start of the boom, Super Micro Computer (NASDAQ: SMCI), is also in trouble due first to a scathing Hindenburg Research report and, more recently, to the fact the company’s auditor resigned, leaving an uncharacteristically harsh letter of explanation,

Though SMCI’s misfortune would usually not cause much concern for Nvidia, the fact that Nate Anderson, the founder of Hindenburg, raised the question of what the semiconductor giant would do with the new information about its client gave rise to some concern.

Finally – and perhaps exemplified by the strong reaction to AMD’s report – there is a persistent fear that the AI boom might, in fact, be an AI bubble. 

Artificial intelligence or abominable intelligence?

The incredible rise in valuation of many major players in the industry, paired with many seemingly unrelated corporations adding ‘AI’ to their marketing, is already ringing alarm bells. In various ways, it is reminiscent of the days of the Dot-com bubble and the cryptocurrency and ‘metaverse’ craze of several years prior.

While both the IT sector and digital assets are present and prominent in 2024, the collapse of their original bubbles caused untold damage to early players and investors in the field.

Additionally, a longer-term concern arises from the AI boom – even if the most bullish forecasts are correct. 

Specifically, the second great age of mechanization appears to be a dark time as no clear pathways to new forms of employment in a world of increasingly automated work have emerged – a fact that is particularly worrying following the rise of the ‘gig economy.’

Furthermore, the ‘gig economy’ itself appears in danger from AI as, should Elon Musk’s plans be realized, Tesla (NASDAQ: TSLA) ‘Robotaxis’ might soon begin replacing Uber (NYSE: UBER) drivers.

Featured image:

Below the Sky. Nvidia investment, Nvidia company logo on screen of smartphone against blurred background of red stock chart. Digital image. USA, June 22, 2023. Shutterstock, June 22, 2023. Date retrieved: October 31, 2024.