The Nvidia spell has been broken. Here’s what could come next
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The $3 trillion tech darling has seduced investors, and its stock has risen about 750% since the beginning of 2023.
But the past few days suggest that the spell the company cast over Wall Street has broken as a sudden wave of volatility briefly sent shares of the company skidding lower.
Nvidia’s stock bounced back Tuesday, yet investors have been reminded of a potentially bubble-bursting truth: You can fly too close to the sun.
What’s happening: Nvidia has had a whiplash-inducing few months.
The chipmaker added a trillion dollars to its market cap, growing to $3 trillion in just 30 days from April 2024. For context, it took Warren Buffett about 60 years to build Berkshire Hathaway into a nearly trillion dollar company.
On June 18, Nvidia’s market value soared to $3.34 trillion, surpassing Microsoft’s to become the world’s most valuable company, and the stock seemed to be speeding up a one-way road to the top.
Why it matters: Nvidia is solely responsible for about 35% of the S&P 500’s total gains this year, according to analysts at Deutsche Bank. That makes it one of the most influential companies ever listed on the S&P 500.
That’s why Nvidia’s plunge last week and on Monday was so jarring to investors. The stock shed a whopping $430 billion in value over the course of just three days.
“First it was the Magnificent Seven. Then it was the Fab Four. Now, a single stock is driving most of the gains in the S&P 500,” said Jim Smigiel, chief investor officer at SEI.
Nvidia has been like a habit investors have been unable to shake.
“One question I get a lot is ‘why don’t I just put all my money in Nvidia.’ I cannot really argue with that question,” wrote Louis Navellier of Navellier & Associates in a recent note to investors.
Then came the drop.
“What we see with Nvidia is typical volatility, which is expected when a stock rises as quickly as Nvidia’s did,” Jochen Stanzl, chief market analyst at trading platform CMC Markets, told CNN on Tuesday.
But typical volatility can have seismic repercussions when it comes to a stock as all-consuming as Nvidia.
Emerging from the cave: The stock was the second best performer in the entire S&P 500 Tuesday, gaining nearly 7%. That pushed its market cap back above the $3 trillion mark again.
Still, the damage may already be done.
“Nvidia’s rich valuation is ludicrous — its market cap now exceeds that of the entire FTSE 100, yet its sales are less than 4% of that index,” said Emily Bowersock Hill, CEO and founding partner of Bowersock Capital Partners, with reference to the 100 biggest stocks listed in London.
Analysts at The Carlyle Group say that while artificial intelligence is revolutionizing the world around us, the Nvidia stock bubble will eventually burst.
“The market seems quite adept at identifying transformational change but gets fixated on the hardware that facilitates it rather than the downstream value that hardware ultimately unlocks,” wrote Jason Thomas, Carlyle’s head of global research and investment strategy in a recent note.
Yes, but: Still, enthusiasm remains high.
“The fundamentals behind Nvidia’s growth remain the same,” Neil Roarty, analyst at investment platform Stocklytics wrote on Tuesday. “If you believe that the AI technology its chips are powering will completely recalibrate the global economy — and many do — then a $3 trillion market cap suddenly looks considerably more reasonable.”
The stock is up another 2.3% in premarket trading Wednesday.
Levi’s under fire after supplier laid off hundreds of workers
Levi’s is a global brand that says it has always stood up for “what’s right.” But its claim to be an ethical company is now in question following the release of a report from an independent labor monitoring group.
Critics accuse Levi’s (LEVI) of ignoring its own labor standards after it continued working with a factory in Turkey that fired around 400 people last year after they joined a union and went on strike over pay and working conditions.
Turkey is a critical link in the global supply chain for apparel. The country exported around $30 billion worth of apparel and textiles last year, according to the Istanbul Exporters’ Association, a clothing industry group.
In a statement to CNN, Levi’s said it had “a longstanding commitment to supporting safe, productive workplaces for workers, and we take any allegations of efforts to curtail freedom of association extremely seriously.” It said it continued sourcing jeans from the factory despite the mass firings, to avoid further job losses, but the continuation of its relationship with the supplier depends “on management’s fulfillment of a detailed remediation plan that addresses freedom of association, working hours, and health and safety.”
Read more here.
‘Months to correct, if not years’: Car dealerships and customers feel the impact as CDK outage drags on
A CDK Global system outage has affected nearly every aspect of the Mazda dealership in Seekonk, Massachusetts, where Ryan Callahan is general sales manager. He says it won’t be a simple fix.
“The financial impact it will directly have on us will take months to correct, if not years,” Callahan said.
Car buyers and dealers are grappling with the shutdown of the retail software provider, which has left nearly 15,000 car dealerships across North America struggling to provide services to customers and scrambling to find temporary analog solutions to operate.
CDK says it’s working on restoring its systems and expects them to be back online in several days, but in the interim, customers and dealership employees remain beset by long wait times, delays — and missed chances to make or save money.
Tom McParland, the owner of Automatic Consulting, a national car buying service, said the outage was impacting customers because they have fewer dealers to choose from.
“It reduces their ability to get a deal,” he said. “It limits the customer’s leverage.”
Read more here.
Investors have been reminded of the potential risks associated with business investing, as the sudden volatility of Nvidia's stock indicates the danger of flying too close to the sun in business.
Although Levi's claims to stand up for ethical practices, concerns have arisen following reports of the company ignoring labor standards and continuing to work with a factory that laid off hundreds of workers for union activities.
