Investors were spooked by economic data and the ambitions of deep-pocketed rivals.
Nvidia stock (NVDA -4.72%) It came under pressure on Thursday, falling as much as 5.1%. As of 12:52 p.m. ET, the stock was still down 4.3%.
The chipmaker’s stock price fell on the latest data on inflation and reports that a major artificial intelligence (AI) supplier could become a rival.
scary prospect
The first factor weighing on Nvidia stock was the latest report on inflation. According to the latest report released by the US Department of Commerce, prices rose gradually in September. Personal consumption spending, the Federal Reserve’s preferred measure of inflation, rose 2.1% from a year earlier, a seasonally adjusted rate of 0.2%. Both measures were in line with economists’ expectations. If volatile food and energy prices are subtracted, the share becomes 2.7%.
While improving inflation indicators are considered good news, it also raises the possibility that the Fed will pause its rate-cutting campaign at next week’s meeting.
Softbank is also said to be the same, (SFTB.Y -3.02%) We plan to use Arm Holdings. (arm -8.48%) The technology will power “a new network of data centers aimed at training and running AI systems,” the Financial Times reported. SoftBank owns 90% of Arm’s shares, and such a move would put it in conflict with Nvidia, which has a dominant share of the GPU data center market. It would also represent a “drastic departure” from the company’s historical business model of developing and licensing intellectual property.
Not everything is hopeless and gloomy
It’s important to take a step back and put both of these news items in context. It doesn’t really matter whether the Fed cuts rates next week, it will only affect investor sentiment, as the economy is on a long road to recovery and will undoubtedly recover.
Additionally, Nvidia’s technology is deeply ingrained in the fabric of AI, and that’s unlikely to change anytime soon. Additionally, Arm derives the majority of its revenue from some of the world’s largest chipmakers, including Nvidia, so it’s highly unlikely that the company plans to bite its way out of profits. And at roughly 33 times next year’s expected earnings, Nvidia’s price remains attractive, especially considering the opportunity represented by AI.
