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Nvidia’s wild ride continues

Stock not in classic bubble territory but is surrounded by huge uncertainty

Nvidia shares have been notably volatile in recent weeks. Photograph: Justin Sullivan/Getty
Nvidia shares have been notably volatile in recent weeks. Photograph: Justin Sullivan/Getty
Proinsias O'Mahony's picture
Proinsias O'Mahony
Sun Sept 08 2024 - 05:00

Nvidia continues to test shareholders’ nerves, with the stock recently losing $279 billion in market capitalisation in a single day – the biggest one-day loss in history.

Record gains and losses are not a rarity with Nvidia. It has accounted for eight of the 10 biggest one-day market cap declines in history and five of the 10 biggest gains.

Consequently, the stock is still up some 125 per cent this year, despite recent tumbles.

What’s notable about Tuesday’s 9.5 per cent reversal is that commentators aren’t sure what drove it. One Barron’s article, for example, suggested investors “spent the long weekend considering” Nvidia’s earnings report the previous Wednesday. It also referred to sector rotation, September’s reputation as a tricky month for stocks and how investors “appear to be in the mood to ditch equities” ahead of economic data.

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In other words, there’s no obvious reason behind this record-breaking loss. Equally, there may have been no obvious reason underpinning earlier record-breaking gains.

Quite simply, there’s huge uncertainty around Nvidia. It is not an obvious bubble – soaring earnings have accompanied the soaring share price.

That said, there is huge uncertainty as to whether Nvidia’s growth is sustainable. As Nobel economist Eugene Fama put it in a recent Financial Times interview, investors are “betting that AI is going to rule the world and that Nvidia will have a near monopoly, but who really knows?”

No one. Consequently, no one knows if Nvidia’s next big move will be another record-breaking gain – or a more devastating drop.

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