NVIDIA's Tuesday slump sets new record – is there more to come?
NVIDIA sets a new record, of the wrong kind
NVIDIA and its investors had gotten used to records being broken by the company and its ever-rallying share price.
But Tuesday’s session, the first of the month for US stock markets, saw the chip company set a new, and less-welcome record, namely the largest one-day fall in a company’s market capitalisation in history.
NVIDIA stock fell by 9.5%, or $278.9 billion in market value. This builds on the decline seen since it reported earnings last week, and puts it on course to test the August lows.
Why did the stock fall?
The stock likely dropped on news that the US Justice Department (DoJ) had decided to investigate NVIDIA, and other unnamed companies.
Investigators suspect that NVIDIA may be making it more difficult for clients to switch suppliers, while also imposing penalties on those that purchase other chips alongside NVIDIA's products.
Inevitably, artificial intelligence (AI) is not far from this investigation, since DoJ officials think that NVIDIA's purchase of RunAI for $700 million has made it more difficult to find alternatives for NVIDIA's products.
NVIDIA caught up in broader market turmoil
The news broke on a day when global indices were already falling into the red. Given the importance of the sector, and NVIDIA in particular, to further profit growth for US indices, it meant that investors were concerned that this engine of growth would stutter further.
What’s the outlook from here?
As everyone is pointing out at present, September and October are not usually great months for US stocks. The average return for both months in election years is usually negative, at 0.46% and 0.34% respectively. Over the last 29 years, NVIDIA's average return in September is -1.95% but a positive 5.74% in October.
Much now hinges on the non-farm payrolls (NFP) report, which will help inform the outlook for the US economy. Beyond that, NVIDIA's next earnings report is not scheduled until 21 November, though in the short-term a close eye will be kept on monthly semiconductor sales. These were reported to be weak for July, which has put further pressure on NVIDIA's stock price.
NVIDIA stock price – technical analysis
Having faltered at $130.00, the stock has now fallen back below the 50-day and 100-day simple moving averages (SMA). The March and April highs around $97.36, which formed the closing lows in early August, are the next obvious level to watch.
A close below this would open the way to the 200-day SMA, currently $88.61. Buyers will need to see a big rebound back above $111.00 that might help to suggest that a low has formed for the time being.