Key Takeaways:
- Nvidia stock down 5% on Sep 7.
- The decline occurred in unison with other tech companies.
- Researcher Rob Arnott sees the AI giant as a “bubble.”
YEREVAN (CoinChapter.com) – Nvidia specializes in manufacturing graphics processing units (GPU) and AI technologies. The corporation stock NVDA opened the Sep 7 session with a 5% slide, dropping to $458.
NVDA stock falls alongside Apple and Microsoft
The move came as a part of a larger 9% correction since establishing a fresh all-time high of $502 on Aug. 24. Despite the mentioned slide, NVDA gains still stood at 225% year-to-date.
Moreover, the NVDA price decline coincided with the overall tech market dip. Apple Inc (AAPL) started the Sep 7 session with a 3.2% slide, while PayPal stock PYPL declined 1.82%. Amazon and Microsoft followed suit with 1.6% and 0.7% declines, respectively.
Is Nvidia a “Big market delusion?”
Meanwhile, experts have been ringing “bubble” bells since Q2, citing NVDA’s rapid price increase. The US market instability, China’s economic woes, and the potential decline of demand for Nvidia’s product piled on the risks.
According to Rob Arnott, the founder of Research Affiliates LLC., the Nvidia market valuation is “a textbook story of a Big Market Delusion.” The author pointed out that the hallmark of a big market delusion is when all the firms in the evolving industry rise together even though they are often direct competitors.
Investors then become so enthusiastic that each firm is priced as if it will be a major winner in the evolving big market despite the fact this is a fallacy of composition: the sum of the parts cannot be greater than the whole.
In an interview with Bloomberg, Arnott warned that many underestimate the ripple effect of Nvidia’s lofty valuation. He mentioned that it could become a bigger problem for the whole market.
Overconfident markets paradoxically transform brilliant future business prospects into even more brilliant current stock price levels. […] Nvidia is today’s exemplar of that genre: a great company priced beyond perfection.
Arnott said, mentioning that Nvidia shares trade at around 110 times earnings.
The researcher also asserted that he did not rule out the risk of being wrong. Nvidia going up “another 10-fold in the coming ten years is possible,” he said. However, Arnott did not see it plausible. “And therefore, I’m comfortable calling it a bubble,” he concluded.
