Is Nvidia’s Reign as the Most Valuable Company Over? Experts Weigh In After $220 Billion Market Cap Drop

Shares of Nvidia, a major semiconductor company, dropped by 6.7% over the last two sessions on Nasdaq. This decline reduced its market value by over $220 billion, pushing it below Microsoft (with a market value of $3.3 trillion) and Apple (valued at $3.2 trillion). On Friday, Nvidia’s market cap stood at $3.1 trillion.

A Year of Rapid Growth

Over the past year, Nvidia’s stock soared by 194%, almost tripling in value due to strong investor interest in artificial intelligence (AI). Nvidia is a key player in AI, supplying essential computer chips. As AI adoption grows, Nvidia’s stock has risen accordingly. But will this growth continue?

Risk of Profit Taking?

AI will be crucial across various industries in the coming years, offering great growth potential for companies in the field. Nvidia’s shift from making graphics processing units (GPUs) for gaming to producing AI chips has been transformative. However, some experts warn that the excitement around AI stocks might have created a bubble.

“We might be in an AI bubble,” said Bimal A. Choksi, founder and CIO of Turtle Star Portfolio Managers. He pointed out that while AI is the future, the revenue generated so far doesn’t match the massive spending on AI chips. “We need to see how this plays out. Sometimes, companies do well, but their stock prices stagnate.”

Amit Goel, co-founder and chief global strategist at Pace 360, mentioned that Nvidia’s stock’s rapid rise makes it susceptible to profit-taking. The recent drop might be due to short-term profit booking and broader market adjustments, such as options expiring and changes in S&P Dow Jones Indices.

Fundamentals Remain Strong

Despite the recent drop, Nvidia’s fundamentals remain strong, and the stock could bounce back. Experts highlight that the competition among Nvidia, Microsoft, and Apple shows the tech industry’s dynamic nature, with AI advancements being a key factor.

“Although Nvidia lost its top spot, it still has the qualities to lead the global market,” said Manish Chowdhury, Head of Research at StoxBox. Nvidia’s high-performing products are preferred for applications like machine learning, IoT, data centers, and cloud computing. Chowdhury believes Nvidia’s market opportunity is vast, supporting future earnings growth.

“In the fast-changing tech landscape, Nvidia is a strong investment for the medium to long term due to its innovative edge, robust product pipeline, and ability to adapt to customer needs,” added Chowdhury.

Outlook on Nvidia’s Future

Many experts think Nvidia’s stock may face intermittent profit-taking but don’t see it as the end of its dominance. “Despite the setback, Nvidia is still a major player in the tech industry, especially in AI,” said Manoj Dalmia, CEO of Proficient Equities. “The recent dip doesn’t signal the end of Nvidia’s dominance. Its role in AI and strong demand for its chips suggest a strong future.”

However, Vinod Jhaveri, an independent analyst, cautions that rising competition could impact Nvidia’s market share and profitability. Still, he expects Nvidia’s stock to perform well through 2024, possibly surpassing $150. “With strong demand for AI technologies, Nvidia is well-positioned to generate strong revenues and earnings. Its expansion into emerging markets will also drive growth,” said Jhaveri.