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Nvidia shares enter correction territory amid ongoing selloff

Nvidia Corp. shares entered correction territory on Monday, as an ongoing selloff erased a historic amount of value for the AI-focused chipmaker.

The stock fell 6.7%, its third straight negative session and biggest one-day percentage drop since April. The three-day drop erased about $430 billion from Nvidia’s market capitalization, the biggest three-day value loss for any company in history, according to data compiled by Bloomberg.

Shares fell 13% over the period, past the 10% threshold that represents a correction. The drop weighed on chipmakers with the Philadelphia Stock Exchange Semiconductor Index falling 3% on Monday. Broadcom Inc. fell 4% while Qualcomm Inc. dropped 5.5% and ARM Holdings Plc slumped 5.8%. US-listed shares of Taiwan Semiconductor Manufacturing Co. shed 3.5%.

Nvidia Enters Correction Territory As Slump Erases $430 Billion
The drop put Nvidia’s valuation back below the $3 trillion threshold, and under both Microsoft Corp. and Apple Inc. in size. Nvidia briefly claimed the title as the world’s largest stock last week.

“In the near-term, it is plausible that investors begin suffering from AI-fatigue or become more broadly concerned about index concentration,” said Neville Javeri, portfolio manager and head of the Empiric LT Equity team at Allspring Global Investments.

WATCH: Parmy Olson of Bloomberg Opinion says investors should be wary about the rapid rise of Nvidia.Source: Bloomberg
Even with the slump, Nvidia remains up nearly 140% this year, making it the second-best performer among S&P 500 Index components, behind Super Micro Computer Inc., another favorite AI play.

The stock suffered a drawdown of about 20% earlier this year, although it quickly returned to all-time highs.

While investors have flocked to Nvidia given the sky-high demand for its chips used in AI processing, the scale of Nvidia’s rally — it soared about 240% over the course of 2023 — has underlined concerns about its valuation. The stock trades at 21 times estimated sales over the next 12 months, making it the most expensive in the S&P 500 by this measure. Still, it remains well liked on Wall Street. Nearly 90% of the analysts tracked by Bloomberg recommend buying, and the average analyst price target points to upside of about 12% from current levels.

“The momentum in Nvidia and AI stocks in general has been staggering,” said Charlie Ashley, portfolio manager at Catalyst Funds. “In terms of investing, I would not be a contrarian right now.” Bloomberg

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