Shock! Market value evaporates 200 billion

Can the company's market value stabilize above 3 trillion US dollars?

This Friday, the AI chip leader Nvidia suffered a fierce sell-off, with a market value of more than 200 billion US dollars evaporating in just two days, falling behind Microsoft and Apple.

Nvidia's status as the world's largest company did not last long, with a loss of more than 3% on Friday, closing at 126.57 US dollars per share, with a continuous decline of more than 6% for several days, and a market value of about 3.1 trillion US dollars, lower than Apple's 3.2 trillion US dollars and Microsoft's 3.3 trillion US dollars.

This Friday's triple witching day (the triple witching day in the US stock market refers to the day when contracts of index, stock, and ETF options, which are three types of financial derivatives, expire on the same day, four times a year, usually the third Friday of March, June, September, and December), about 5.5 trillion US dollars of options expired, the largest scale in history, the market predicted that Nvidia would be the first to be hit, and the value of the expiration of related options was the second largest among all target assets, only behind the S&P 500.

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Traders believe that there is no fundamental reason behind the sell-off over the weekend, but this highlights the astonishing speed of Nvidia's market performance - it has nearly doubled in just the past year, and is now very susceptible to the impact of good news being fully priced in and profit-taking.

AJ Bell's investment director, Russ Mold, said: "For a huge company like Nvidia, this is just a common fluctuation in the stock market, and its market value may evaporate or increase by hundreds of millions or even tens of billions of US dollars in an instant."

Nevertheless, bulls still strongly support Nvidia. Wall Street believes that this AI giant still has room for further growth. Analysts led by Ben Reitzes of Melius Research raised their target price for Nvidia from 125 US dollars to 160 US dollars on Friday, which is the fifth time they have raised their target price for Nvidia this year.Reitzes said: "We still believe that NVIDIA's situation is better than some leading SaaS (Software as a Service) companies. In our view, these leading companies have not yet proven the contribution of artificial intelligence to the story. In contrast, with the opening of AI and the vertical optimization of technology stacks, profits are transferred to NVIDIA, and NVIDIA should absorb a larger share of the enterprise application software market."

How long can NVIDIA maintain its high market value?

As of the close of the US stock market on June 18, NVIDIA's stock price rose by 3.51%, closing at $135.58, setting a new historical high, with a total market value of $3.335 trillion, surpassing Microsoft and Apple to become the world's most valuable listed company.

This month, the title has changed hands between the two traditional technology giants, Microsoft and Apple, but many traders are confident that NVIDIA's rise to this throne should be just a matter of time, as this GPU manufacturer will be the main beneficiary of the "new round of industrial revolution."

The performance of the "three giants" this year also reflects this point. Apple's stock price gained momentum after the Dragon Boat Festival WWDC, with a cumulative increase of 11% so far this year; Microsoft, which is closely related to OpenAI, has steadily risen, with a cumulative increase of 19%; in contrast, NVIDIA is much stronger, with a year-to-date increase of 173%.

From another perspective, NVIDIA's rise is also astonishing. It took NVIDIA 96 days (calendar days) to increase its market value from $2 trillion to $3 trillion. In comparison, according to data from Bespoke Investment Group, Microsoft took 945 days, and Apple took 1044 days.

It should be noted that NVIDIA's cumulative increase last year was 239%, which means that its strong upward momentum has been sustained for at least a year and a half and may continue to extend.

NVIDIA's rise is very eye-catching. According to Dow Jones Market Data, five years ago, NVIDIA's market value ranking had not entered the top 20, a year ago, the company's market value ranked fifth, and two years ago it ranked tenth.

However, Barron's believes that the rapid rise in NVIDIA's market value is the key reason why the company is difficult to maintain the first place in market value.

A warning sign can be seen from the target prices given by analysts. Microsoft's stock price is far below the target price of $485.82 given by analysts, while NVIDIA's stock price has exceeded the widely expected target price of $123.63, and Apple's stock price is also above the target price, but the gap between the target price is relatively small.Another concern is that NVIDIA's rise is primarily based on a single technology—chips and platforms that power artificial intelligence applications. Some people worry that if companies that buy NVIDIA's products cannot generate enough revenue from their investments, the artificial intelligence bubble may burst. In contrast, Apple and Microsoft have a broader range of businesses that can drive growth over the long term.

However, most analysts still have a bullish outlook on NVIDIA. Susquehanna analyst Christopher Rolland recently set a target price of $160 for NVIDIA.

Rolland said, "We value NVIDIA at a premium to the 28.5x median, but we believe this is justified as NVIDIA is in a very favorable position, and the company will benefit from the booming end markets."

Hans Mosesmann of Rosenblatt Securities is currently the most bullish analyst. He has significantly raised NVIDIA's target price from $140 to $200. Based on Monday's closing price of $130.98, this means NVIDIA has more than 50% upside potential.

Mosesmann wrote in a report to clients, "We believe NVIDIA's Hopper, Blackwell, and Rubin product families are driving 'value' market share growth in one of the most successful chip/platform product cycles in Silicon Valley."

NVIDIA has many attractive opportunities in areas such as data switching, but Mosesmann said, "The real story is the software that can complement all the hardware strengths. We expect that the proportion of software business in NVIDIA's overall revenue will significantly increase in the next 10 years, and given the sustainability of the business, the valuation tends to be on the upside."

Mosesmann believes that NVIDIA's earnings per share will exceed $5 by 2026, compared to the consensus expectation of $4.16 from analysts surveyed by FactSet.