Since the beginning of 2023, the boom in artificial intelligence has helped Nvidia's stock price soar by over 700%. However, just after topping the US stock market value list last week, the stock price fluctuations that followed surprised the market quite a bit. The flow of funds shows that the retail investors' copying of the chassis has become the key to stabilizing the stock price. Late Wednesday, they recovered more than 2% of the loss in the day, rising for the second day in a row. However, the debate about the risk of the chip giant's foam bursting is heating up.
Short sellers leverage derivatives to gain momentum
On June 18th, Nvidia's market value soared to $3.34 trillion, surpassing Microsoft to become the world's largest company by market value. Deutsche Bank stated that Nvidia contributed 35% of the S&P 500's increase this year, making it one of the most influential companies in history.
Bears choose to launch attacks at this milestone moment. Starting from last Thursday (20th), Nvidia has been investing in derivatives such as futures and options, resulting in a nearly 13% decline for three consecutive days and a market value evaporation of over 430 billion US dollars. According to data analysis firm Ortex Technologies, short selling funds earned nearly $5 billion in profits during this round of selling.
Factors such as valuation and shareholder reduction are considered to be the triggers for Nvidia's stock price fluctuations. Chuck Carlson, CEO of Horizon Investment Services, said that high market expectations are more likely to trigger capital panic when bad news strikes. "For stocks like Nvidia, it's hard not to consider them as a factor in investment decisions because you have this kind of chasing feeling, and valuations now look relatively expensive," he said.
Some market participants are cautious about the prospect of Nvidia achieving astonishing returns in the future. Legendary investor Stanley Druckenmiller stated last month that he has significantly reduced his holdings in NVIDIA, stating that "the prospects of artificial intelligence may be exaggerated now, but may be underestimated in the long run.".
Microsoft, Meta, and Google's parent company Alphabet are increasing their research and development investment to intensify market competition. Morning Star analyst Brian Colello said that customers will ultimately seek to reduce their dependence on Nvidia and diversify their supplier base. "Nvidia dominates in the field of artificial intelligence today, and if it can maintain its leading position in the next decade, then the sky is the limit of the company's profitability. However, any successfully developed alternative may limit Nvidia's advantage."
D. Davidson's analyst Gil Luria stated that he has rated Nvidia as "neutral" with a target price of $90. He believes that Nvidia has a "truly revolutionary" product and has achieved unprecedented growth. However, Wall Street's profit expectations for the next few years have driven up the company's valuation, and Lulia believes that whether this can be achieved depends on whether future customers are willing to spend enough money on Nvidia.
Individual investors actively buy at the bottom
As a major chip supplier supporting artificial intelligence applications, Nvidia expects its revenue to double this fiscal year to $120 billion, and further increase to $160 billion next year, with a growth rate far higher than its competitor Microsoft's 16%.
Many funds see the adjustment as an opportunity to buy on dips. Steve Sosnick, Chief Strategist at Interactive Brokers, said that since last Thursday, individual investors have been strongly biased towards buyers of Nvidia. Sosnick also stated that the options activity around Nvidia shows a preference for doing more deltas, which means investors are more inclined to buy call options and sell put options.
Morgan Stanley analyst Joseph Moore reiterated his optimistic view on Nvidia's stock in a report released on Tuesday. "The signs of demand remain strong, the demand for H100 remains surprising, and the prospects for H200 are becoming increasingly clear. Blackwell is scheduled to start shipping later this year and be fully booked by mid next year."
Moore admits that the supply chain situation is mixed, which is not surprising. He gave an example that considering Nvidia's current product cycle, the delivery cycle for H100 chips is "very short". "We certainly know that the stock's market value has increased by nearly $1 trillion since the previous quarter's financial report, so a good outlook has at least partially been discounted into the stock price. However, we can report that the outlook is still very positive and at least to some extent undervalued."
UBS analyst Karl Keirstead also found strong emotions towards Nvidia in a recent survey of corporate executives. He wrote, "As expected, consistent with our previous survey results, Nvidia remains the primary choice for training and inference workloads, with respondents now leaning more towards Hopper architecture (H100+H200) rather than traditional and low-end GPUs."
First Financial reporters have noticed that several institutions, including Citigroup, Jeffrey, and Canton Fitzgerald, have raised Nvidia's target price this week. Citigroup stated that as the adoption rate of artificial intelligence increases, the company's product demand and profit expectations have both increased.
"The fundamentals behind Nvidia's growth remain unchanged. If you believe that the artificial intelligence technology driven by its chips will completely change the global economy, as many people believe, then a market value of $3 trillion looks more reasonable," wrote Neil Roarty, an analyst at research firm Stocklytics, in a report