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Early last week, Nvidia (NASDAQ:NVDA) surpassed Microsoft (NASDAQ:MSFT) to become the world’s most valuable company. Some attribute it to big orders from Dell, Super Micro, and AI-focused startup Tesla.
But in reality, the fact that Nvidia surpassed the $3 trillion mark and surpassed Apple by capitalization was not only due to backlog but also due to investors’ fear of missing out.
Despite Nvidia’s already high valuation based on traditional metrics, there remains strong demand for its shares. Investors are rushing to get on board, hoping to ride the momentum.
However, this usually ends the same way: the stock corrects a double-digit percentage, leaving recent buyers with a potential tax discount due to losses…
Towards the end of the week, with Nvidia stock prices falling, the question naturally arose: is this a turning point or just a temporary pullback before another upward rally?
Given Nvidia’s speculative growth, the answer depends less on fundamental factors such as demand for its products and more on market sentiment.
Luckily for the bulls, the outlook remains bullish, with the S&P and Nasdaq 100 breaking record highs every two weeks and analysts revising their forecasts upward.
No one seems concerned about the increasing concentration of equity risk, with the top five stocks now accounting for a record 27% of the S&P 500 index.
However, one should remember that the entire index will suffer if these stocks fall.
Turning to Nvidia, the recent correction is attributed to insider stock sales, including that of CEO Jen-Hsun Huang and other company employees.
Just in case, it is essential to clarify that these transactions are part of a predetermined trading plan (Rule 10b5-1) designed to avoid accusations of insider trading.
In other words, the recent sell-off doesn’t necessarily mean that Nvidia’s management believes that growth has peaked and a Tesla-like scenario is coming.
Still, the sell-off could undermine investor confidence, and we’re already seeing it. Is it the right time to “buy the dip”? Simply put, it’s a risky business.
If this Friday’s U.S. PCE data is better than expected, the mood in the market could turn bearish as the chances of more rate cuts this year will diminish.
