Insights

Why Nvidia Stock Dropped Again Wednesday

What happened
Shares of semiconductors giant Nvidia (NASDAQ: NVDA), which appeared ready to start rising again on Tuesday, missed a beat and dropped along with the rest of the tech stock market Wednesday.
With the Nasdaq down 2.1%, Nvidia shares are even underperforming a bit, with a 3.3% loss as of 1:25 p.m. ET.
Image source: Getty Images.

So what
What’s got Nvidia investors down in the dumps today? There are all the usual factors, of course — high inflation (down from 8.5% last month to 8.3% in the most recent report, but still high), rising interest rates (the Federal Reserve says it won’t be hiking rates 0.75% at a time, but it seems very likely that more 0.5% rate hikes are coming — and we haven’t seen those in 20 years!), and the consequent drag on consumer spending that comes with inflation and rising rates.
What really seems to be alarming investors today, though, is the implosion of cryptocurrency values. The past 24 hours have seen literally dozens of cryptocurrency tokens fall in value by double digits — everything from well-known names like Dogecoin, Shiba Inu, and Ethereum to more esoteric offerings with names like PolkaDot, Osmosis, and ApeCoin.
Now what
One of the most common uses for Nvidia graphics processing chips in recent years has been for the mining of cryptocurrencies. It makes sense, then, that if cryptocurrencies are losing value, crypto fans may lose interest in mining — and in buying Nvidia chips with which to mine crypto. Indeed, multiple analysts have been predicting just such an implosion in Nvidia’s gaming chip business in recent weeks and months, and this is a big part of the reason why its stock has lost 43% of its value since the year began.
All that being said, here’s what I think investors should keep front of mind: In the short term, yes, Nvidia may face headwinds from the cryptocurrency crack-up. In the long term, however, this is still a business pegged to grow earnings at 21% annually over the next five years as it grows its server and virtual reality businesses.
Whether or not Nvidia is worth 44 times earnings today may remain an open question, but one thing is certain: There’s going to come a point where it has fallen enough that, at 21% growth, the stock is an obvious buy. With every percentage point that Nvidia becomes cheaper, that day comes a little bit closer.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ethereum and Nvidia. The Motley Fool has a disclosure policy. –

What happened

Shares of semiconductors giant Nvidia (NASDAQ: NVDA), which appeared ready to start rising again on Tuesday, missed a beat and dropped along with the rest of the tech stock market Wednesday.

With the Nasdaq down 2.1%, Nvidia shares are even underperforming a bit, with a 3.3% loss as of 1:25 p.m. ET.

Image source: Getty Images.

So what

What’s got Nvidia investors down in the dumps today? There are all the usual factors, of course — high inflation (down from 8.5% last month to 8.3% in the most recent report, but still high), rising interest rates (the Federal Reserve says it won’t be hiking rates 0.75% at a time, but it seems very likely that more 0.5% rate hikes are coming — and we haven’t seen those in 20 years!), and the consequent drag on consumer spending that comes with inflation and rising rates.

What really seems to be alarming investors today, though, is the implosion of cryptocurrency values. The past 24 hours have seen literally dozens of cryptocurrency tokens fall in value by double digits — everything from well-known names like Dogecoin, Shiba Inu, and Ethereum to more esoteric offerings with names like PolkaDot, Osmosis, and ApeCoin.

Now what

One of the most common uses for Nvidia graphics processing chips in recent years has been for the mining of cryptocurrencies. It makes sense, then, that if cryptocurrencies are losing value, crypto fans may lose interest in mining — and in buying Nvidia chips with which to mine crypto. Indeed, multiple analysts have been predicting just such an implosion in Nvidia’s gaming chip business in recent weeks and months, and this is a big part of the reason why its stock has lost 43% of its value since the year began.

All that being said, here’s what I think investors should keep front of mind: In the short term, yes, Nvidia may face headwinds from the cryptocurrency crack-up. In the long term, however, this is still a business pegged to grow earnings at 21% annually over the next five years as it grows its server and virtual reality businesses.

Whether or not Nvidia is worth 44 times earnings today may remain an open question, but one thing is certain: There’s going to come a point where it has fallen enough that, at 21% growth, the stock is an obvious buy. With every percentage point that Nvidia becomes cheaper, that day comes a little bit closer.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ethereum and Nvidia. The Motley Fool has a disclosure policy.

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