Nvidia shares slide 13% over last three sessions, wiping out half a trillion dollars of value since it became world’s most valuable company last week
It’s important to remember that Nvidia is an extremely volatile stock.
Kathleen Brooks,
research director at
XTB, explains:
The chart below shows Nvidia 1-month call option volatility and the Vix (green line). The calm Vix index hides the fact that the second-best performer on the index is extremely volatile. As we have said before, Nvidia does experience periods of extreme volatility, both to the upside and to the downside. If you own this stock, you need to make peace with that.
Not even the stock split earlier this month has dampened down Nvidia’s stock price volatility. Analysts have upgraded their forecasts for their Q2 earnings in the last 4 weeks, however, with a 12-month forward P/E ratio of 42, higher than the average for the S&P 500 of 25.6, there is no denying that Nvidia is starting to look a bit rich.
While we don’t deny that Nvidia is delivering on the earnings front: it is expected to deliver $28bn of revenue in Q3, and operating profits of $18.5bn, investors must pay up for these earnings. Thus, there is less room for Nvidia to slip up when it delivers its earnings reports, which may worry some investors. Tech is a multiyear theme, especially Artificial Intelligence, thus we do not expect Nvidia’s stock price to fall off a cliff, but a pullback is to be expected. Added to this, it is normal for investors to pause and consider if a stock is looking overvalued, even a stock like Nvidia.
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