Nvidia (NVDA) shares fell more than 9% in premarket trading on Monday as the global stock market sell-off accelerated and worries about a potential U.S. economic downturn rippled through global markets. Equity markets from Asia to Europe were hit hard, and bond yields fell as investors flocked to safe-haven assets.
The turmoil has fueled speculation that the Federal Reserve may need to cut interest rates quickly to spur growth and stabilize the economy.
Nvidia’s (NVDA) “relief rally” on Wednesday was short-lived, as the company’s shares hit their lowest level since May and fell as much as 7% on Friday, wiping out gains from earlier in the week amid turmoil across the tech sector.
The Nasdaq (^IXIC) has entered a correction, fuelled not only by signs of an economic slowdown but also by concerns that a handful of tech giants are overinvesting in AI.
But the latter element — a pledge to increase investment in AI — should be seen as a catalyst for Nvidia and other AI chipmakers.
Wall Street pros were quick to tell Yahoo Finance this week that the AI trade isn’t over yet and that the recent sell-off should be viewed as an opportunity to buy into the stock. While big tech companies have struggled to show results from their AI investments, they remain committed to investing in chips for the long term.
“This is a good buying opportunity given the overall market outlook,” Luke Stone of Winthrop Capital Management told me following the upbeat earnings outlook for Nvidia rival AMD (AMD).
“This division is emerging between chipmakers and their customers, and customers are really struggling as they have to invest more and more in their products,” Winthrop added.
Last quarter alone, Meta (META), Alphabet (GOOG, GOOGL) and Microsoft (MSFT) all recorded spending of over $40 billion. Amazon (AMZN) has totaled $30 billion in the first half of the year and plans to spend even more in the second half. All of the companies said the majority of their money is going toward AI.
That’s not what the market wanted to hear. Amazon and Microsoft shares ended the week lower, mirroring Alphabet’s decline last week, as investors made it clear that the AI deal had turned into a sham story.
But what’s worrying for hyperscalers is good news for Nvidia and its peers.
“The[capital expenditure]guidelines have actually continued to rise significantly, and that’s what’s really important,” Stacey Rasgon, a managing director at Bernstein, told Yahoo Finance. “People are worried about sustainability, but it looks like, at least for now, spending is holding up.”
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And with Meta, Amazon, Google and Microsoft accounting for more than 40% of the chipmaker’s revenue, Nvidia’s sales are set to get a boost.
“Concerns that revenue trajectory will not be sustained over the next 12 months or so are now beginning to ease,” CFRA’s Angelo Zino explained to me. “We think Nvidia will post great results, which will be a catalyst for the sector.”
In a client note earlier this week, Morgan Stanley’s Joseph Moore argued that Nvidia’s selloff presents a “good entry point” and again maintained the company as a “top pick.”
“Our perception is that the market is very pessimistic about some of the hyperscale commentary and there is a clear desire on the customer side to continue to put resources into the development of multimodal generative AI,” Moore wrote.
Dan Morgan, a portfolio manager at Synovus Trust, likened Nvidia and other AI-infrastructure stocks to the suppliers that thrived during the Gold Rush. “Do you want to be the gold digger or the person selling the equipment to dig for gold?” he said.
Nvidia fell 5% over the weekend, taking its stock price down about 26% from its all-time high. Despite the decline, the stock is still up 116% this year.
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Three times each week, Yahoo Finance Editor-in-Chief Brian Sozzi engages in insightful conversations and chats with some of the biggest names in business and markets on the Opening Bid podcast. Find more episodes on our video hub, available on your favorite streaming service, or listen and subscribe on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
In the Opening Bid episode below, Citi’s Director of US Strategy Drew Pettit issues a warning to short-term traders about AI trading.
Seana Smith is an anchor for Yahoo Finance. Follow her on Twitter at @SeanaNSmith. If you have a deal, merger or activist tip, email her at seanasmith@yahooinc.com.
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