The U.S. presidential election has proven to be a positive catalyst for the stock market. Since Nov. 5, the S&P 500 has risen by 5% as of Monday. But one stock that hasn’t been doing well since then is Nvidia (NASDAQ: NVDA), which has gone in the opposite direction, declining by more than 6%.
It’s unusual territory for Nvidia to be in, as it has been among the hottest growth stocks to own, especially in recent years. Are its recent struggles a sign that it has finally hit a peak?
When Nvidia reported earnings last month and beat expectations, and the stock didn’t surge in value, that was perhaps the big warning sign to investors that it may not be so easy for the hot artificial intelligence (AI) stock to take off anymore. Nvidia’s sales nearly doubled to $35 billion for the period ended Oct. 27 and net income of more than $19 billion was an astounding 55% of the top line. It beat expectations as AI demand remains robust.
The problem is that when a stock already has a $3 trillion market cap and is trading at more than 50 times its trailing earnings, expectations are already fairly high. And even though Nvidia’s stock hasn’t been doing terribly well in the past month, it’s still among the top three most valuable companies in the world (the others are Microsoft and Apple). Nvidia is what you might consider a stock that is “priced to perfection.” For it to rise drastically in value, it could easily become the most highly valued stock in the world.
The stock crossed the $150 mark on Nov. 21 and it hasn’t returned to that level since. I do believe that there may be some resistance not only at that level but at whatever the highest market cap is — today it’s Apple, with a market cap of around $3.8 trillion. For Nvidia to convince investors that it should be the most valuable stock in the world, and continue rising in value, it may need to do even more than it has been doing.
Investors may also be concerned that there are a growing number of risks on the horizon, which could weigh on Nvidia’s future growth prospects.
More tech companies are creating custom AI chips, which could take some market share away from Nvidia. China recently launched an antitrust investigation to determine whether Nvidia violated its anti-monopoly laws. And there’s also the worry that AI spending may slow in the near future. For a stock that is priced to perfection, these are all potential cracks that could tarnish Nvidia’s pristine image.
