Why Nvidia (NVDA) Shares Are Sliding Today

Max Juang /
2024/07/11 2:21 pm EDT

What Happened:

Shares of leading designer of graphics chips Nvidia (NASDAQ:NVDA) fell 5.8% in the afternoon session as investors seem to be rotating out of large-cap tech stocks that have been winners year-to-date. Microsoft, Alphabet, Amazon, and Apple are down today. 

We observe that the Russell 2000 Index is up 3%, suggesting that investors could be rotating into smaller stocks. The rotation could have been sparked by today's inflation report by the Bureau of Labor Statistics. It revealed that CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of June 2024 came in better than expected at 3% year on year (the lowest level in more than three years). 

The recent inflation prints supported the argument that the Fed will start cutting rates this year as the headline figures moved closer to the 2% target. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Nvidia? Access our full analysis report here, it's free.

What is the market telling us:

Nvidia's shares are very volatile and over the last year have had 13 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 16 days ago, when the company gained 6.4% as the stock rebounded after shedding more than $400b in market cap since the previous week. We'd note that there were no specific fundamental reasons driving the move, just as there were no major ones driving the decline in the stock in the previous week or so. The last major fundamental datapoint we had on the company was May 22, 2024, when Nvidia reported Q1'2024 earnings that were quite strong and above expectations. 

Nvidia is up 166% since the beginning of the year, and at $128.19 per share it is trading close to its 52-week high of $135.58 from June 2024. Investors who bought $1,000 worth of Nvidia's shares 5 years ago would now be looking at an investment worth $30,838.

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