Just when it seemed the AI frenzy had reached a fever pitch of historic proportions, Nvidia's stock hit a air pocket last week that sent shivers across Wall Street. After an otherworldly rally propelled the chipmaker's market value past $1 trillion, a three-day 15% plunge reignited fears that the AI mania had finally run too hot.
Investors dumped shares in a bout of panic selling not seen since the dog days of the pandemic bear market. Having defied gravity for so long, Nvidia appeared poised to rejoin the ranks of dot-com busts and crypto catastrophes that came before it. The AI revolution's poster child looked primed to cool off in spectacular fashion after nearly tripling in value just this year.
But as swiftly as the descent began, it reversed course in an equally blistering manner. On Tuesday, Nvidia shares rebounded nearly 7%, catalyzing a big rebound rally across the entire AI ecosystem. After briefly surrendering its title as Wall Street's largest company, Nvidia is back on its lofty perch at the $1 trillion valuation altar.
Volatility has reigned amid a tug-of-war between investors frantic to ride the AI wave and those fearing a speculative bubble accelerating towards its pin-prick. The wild oscillations underscore the rising skepticism over whether Nvidia's recent gains have detached from fundamentals.
The data only fuels the bubble anxieties. At its recent peak, Nvidia was trading a stupefying 100% above its 200-day moving average. According to BTIG data, this represented the largest premium to that key technical indicator ever seen from a mega-cap stock – exceeding even the delirious heights of Cisco's dot-com delirium.
Of course, enthusiasts argue Nvidia is in a completely different class versus 2000's basket of profitless upstarts subsisting on hype. The AI pioneer generates real revenue, boasts unrivaled technological prowess, and sits at the nexus of what could be a world-altering inflection more impactful than the internet itself.
Still, the company's $207 billion projected 2023 sales figure doesn't quite mesh with its $1 trillion valuation implying over 4 years of uninterrupted geometric growth. At 190x forward earnings, Nvidia shares remain priced for aerospace-like trajectory, not orbits.
Profitability also remains an ongoing concern, with the breakneck pace of AI investments in research, production capacity and human capital depressing margins. Bloomberg Intelligence warns profits may have peaked due to intensifying competition and costs.
Nvidia also derives around one-quarter of its revenue from cloud AI operations in China, exposing it to geopolitical crosswinds should US-Beijing tensions escalate. Regulatory shockwaves could ripple through AI players as well amid lingering ethical and privacy debates.
Whether Nvidia and its AI peers can defy the gravity that took down tech's previous heavyweights remains to be seen. But today's euphoric bounceback after a harrowing dive shows the deep faith in AI's transformative power is unbroken – and the wild rides may just be getting started.
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