After briefly surpassing Microsoft last week to become the world's largest company by market value, Nvidia has experienced a significant pullback in recent trading days. Firstly, last Friday (June 22), trading volume released a "sky high". On Monday Eastern Time, Nvidia plummeted again, closing down 6.7% on the same day, marking the third consecutive day of volume decline.
During the three trading days from June 20th to 24th, Nvidia experienced a cumulative decline of 12.89% and its market value evaporated by approximately $430 billion, officially entering a correction territory.
Bloomberg
In response to Nvidia's consecutive decline, an unnamed Managing Director and Chief Analyst in the computer industry at a securities firm pointed out in an interview with the Daily Economic News that this is a normal pullback after rising too quickly in the past period of time, after all, its market value had already risen to the highest in the world last week.
Another interviewed electronic analyst pointed out that Nvidia's recent consecutive decline is mainly due to executives including Huang Renxun reducing their holdings and taking profits of over $700 million, combined with trading factors. However, no major bearish fundamentals have been found so far.
After consecutive declines, will Nvidia's stock price hit bottom and investors be able to get on board?
Currently, nearly 90% of analysts still maintain a "buy" rating for Nvidia, with an average target price 12% higher than its current price. On the other hand, more and more analysts are beginning to compare Nvidia with Cisco Systems and Intel before the Internet foam burst at the beginning of this century.
The market value evaporated by 430 billion US dollars in three days, and the stock price is close to the support level of 115 US dollars per share
During the three trading days from June 20th to 24th, Nvidia experienced a cumulative decline of 12.89% and its market value evaporated by approximately $430 billion, officially entering a correction territory.
The significant fluctuations in stock prices not only affect Nvidia stock holders, but also have a huge impact on retail investors investing in leveraged ETFs.
Last week, the GraniteShares 2x Long NVDA Daily ETF (NVDL), which doubled its long position on Nvidia, attracted a record breaking inflow of $743 million, attracting a large number of investors hoping to amplify Nvidia's regular stock returns. The ETF was launched in December 2022 and has attracted approximately $3.7 billion in assets as of Monday's close. Among them, the total inflow for the whole year of 2023 was only $189 million, and there have been approximately $1.8 billion in capital inflows so far in 2024.
However, this inflow of over $700 million has missed the right time - since the close of last Tuesday, the ETF has plummeted by about 25%.
Yahoo
As of the close of Monday Eastern Time, Nvidia's stock price was at $118.11, close to the critical $115 Fibonacci retracement level, which is a tool used by technical analysts to determine support or resistance lines for stocks and other assets. Although seeking technical analysis from historical trading patterns may not be entirely accurate, it can provide investors with a valuable roadmap for reference.
Bloomberg
This indicator has far exceeded that of Cisco during the Internet foam
Given the sustained strong demand for NVIDIA's ultra-high computing power GPUs in the market, investors have flocked to NVIDIA over the past year, driving its stock price up significantly in a short period of time. However, the consecutive sharp declines in the past three trading days have highlighted market concerns about Nvidia's valuation. Based on expected sales for the next 12 months, Nvidia's P/E ratio is 21 times, which is the highest valuation among all components of the S&P 500. Usually, a high P/E ratio may indicate rapid growth in a company's performance and confidence in its future profitability in the market, but it can also be a sign of overvalued stocks.
In the eyes of many people, the recent fluctuations in stock prices are somewhat reminiscent of the situation at the beginning of this century. At that time, the stock prices of Cisco Systems and Intel and other companies plummeted rapidly after the Internet foam burst, and have not yet fully recovered their lost ground.
NVIDIA's stock price is far above its 200 day moving average (Oriental Wealth)
MarketWatch reports that NVIDIA's share price is nearly 100% higher than its 200 day average. Since 1990, the maximum price difference between the share price of the company with the largest global market capitalization and its 200 day average is 80%, which was achieved by Cisco in March 2000 (before the Internet foam burst).
Bloomberg
The 200 day moving average is considered a key indicator by traders and technical market analysts to determine the overall long-term market trend. When the stock price remains above the 200 day moving average, it is usually considered to be in an overall upward trend. However, excessive deviation from the 200 day moving average is often considered overvalued.
However, there are still many people on Wall Street who are optimistic about Nvidia. Nearly 90% of analysts tracked by Bloomberg still recommend buying, and the average target price of analysts is still expected to rise by about 12% from the current level for Nvidia.
The attitude of Constellation Research, a strategic consulting firm, is even more positive. The company stated that its data shows that Nvidia's stock price will soar to $200 per share in the next 12 months, and the upward trend will last for two years. This means that the stock will rise by 69% from its current level.
Oppenheimer's head of technical analysis, Ari Wald, also believes that for Nvidia, long-term trends are more important than any specific level, and the long-term trend remains strong. Nvidia's current stock price is still far above the 50 day moving average of about $101 and the 100 day moving average of $92.
Huang Renxun still has 5.28 million shares for sale
The Daily Economic News reporter noticed that Nvidia's position as the world's most valuable company only lasted for one trading day, and then began a continuous pullback. What is the reason behind this?
An anonymous electronics industry analyst from a securities firm told reporters that Nvidia's recent consecutive decline is mainly due to executives including Huang Renxun reducing their holdings, profit taking, and trading factors. Currently, no major bearish fundamentals have been found.
According to documents from the US Securities and Exchange Commission (SEC), Huang Renxun reduced his holdings of 720000 Nvidia shares through the "10b5-1 Rule Trading Plan" from June 13 to 21, with a cash out amount of $94.6 million and an average selling price of $131.44 per share.
Edgar
After this transaction, Huang Renxun held 80.7 million shares of Nvidia stock in his personal account. In addition, he also controls 605 million shares through trusts, holds 49 million shares through partnerships, and holds 132 million shares of Nvidia through other trust methods.
When submitting the reduction plan, Huang Renxun originally planned to reduce his holdings of no more than 600000 shares of NVIDIA stock. However, this plan was formulated before the company implemented a 10-1 stock split, which took effect after the stock market closed on June 7th. According to the calculation after the split adjustment, his sales plan now covers 6 million shares. Currently, Huang Renxun has sold 720000 shares, which means he will sell an additional 5.28 million shares. This plan will continue until March 2025.
In addition, according to statistics compiled by Washington Service, a major provider of internal trading data in the US market, Nvidia executives and board members have sold approximately 770000 Nvidia shares worth over $700 million so far this year, excluding the impact of the company's 1 to 10 split on June 10th.
The Daily Economic News reporter also noted that Nvidia has always lacked internal buyer power. According to statistics compiled by Washington Service, apart from exercising significant options, Nvidia has not had any insiders increase their holdings since its CFO Colette Kress bought a large amount of stocks in December 2020.
Recently, Business Insider also reported that at the end of last year, Nvidia CEO Huang Renxun and executives held a series of meetings to discuss an increasingly worrying issue, namely whether Nvidia's largest customer will always maintain demand for Nvidia chips. Huang Renxun does not want the company to one day decline like former hardware giants like Cisco. He is pushing the company into the software and cloud services sector.
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