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The AI Bubble: Bursting Soon? Nvidia and Others Lose Ground

Daniel Kim Views  

NVIDIA, a leading artificial intelligence chip maker, has been struggling since it briefly became the most valuable publicly traded US company last week. After experiencing a drop in share prices for three consecutive trading days, its market cap has slipped back to third place.

Other tech giants benefiting from the AI boom, including Supermicro, Qualcomm, and ARM, have also been losing ground, with their share prices losing 5-8%. Some market analysts have expressed concerns about an AI ‘bubble.’

As it becomes increasingly difficult to predict the future direction of AI stocks, the tech world is now turning its attention to Micron Technology’s earnings announcement, which is set to take place on Wednesday this week.

A view of Nvidia’s headquarters in Santa Clara, California

On the 24th, Nvidia closed at $118.11 on the New York Stock Exchange, marking a 6.68% drop from the previous trading day and about 13% from its peak of $135.58 on the 18th.

The market cap, which had once exceeded $3.33 trillion, also shrank to $2.91 trillion, placing Nvidia back in third place, following Microsoft Corporation (MS) and Apple.

The decline in Nvidia’s stock price is interpreted as a reaction to its recent surge. The company’s stock has skyrocketed about 7.5 times in 18 months and has risen 150% this year alone. The stock surged 30% for a month following its earnings announcement on May 22.

Analysts suggest the company has entered a ‘breather’ period as profit-taking selling emerged after its 10-to-1 stock split and topped the market cap.

Supermicro considered a leading AI stock along with Nvidia, has seen a dramatic rise this year, and it also fell 8.65% from the previous trading day. Qualcomm and ARM, which have been rising on expectations for on-device AI, also fell 5.5% and 5.76%, respectively.

Some have been interpreting the current situation, where Nvidia, which sells AI accelerators, has a higher market cap than MS and other cloud and data center companies that provide AI services, as abnormal.

There are doubts about whether the purchase of AI chipsets will continue indefinitely when the monetization strategy for AI itself is unclear. “The AI boom is overheating, raising concerns about a bubble in the stock market and excessive expectations among investors,” commented the Associated Press (AP).

Meanwhile, the number of investors planning to reduce their stock holdings is also increasing as they judge that the current price is high enough that further increases within this year are difficult to expect.

“One in four investors responded that they plan to reduce their stock holdings next month,” and “586 experts predicted that the S&P 500 index would close at 5606 this year, which is only 2.5% higher than the current level,” Bloomberg reported.

The market is awaiting Micron’s earnings announcement on June 26. Micron is one of the three major memory chip companies, alongside Samsung Electronics and SK Hynix. It releases its earnings report as soon as possible, often serving as an early barometer for the future direction of the semiconductor market.

Matt Maley, chief market strategist at Miller Tabak, told Bloomberg that weaknesses in some major tech companies could lead to widespread market issues. He noted that Micron’s upcoming earnings announcement might be a crucial indicator.

Daniel Kim
content@viewusglobal.com

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