Nvidia Shares Enter Correction After Falling 12.2% From Record High
Nvidia shares have fallen 12.2% from a record high of $243 earlier this month to $214, entering a technical correction. The stock also broke below a rising wedge pattern, according to the report.
Nvidia (NASDAQ: NVDA ) stock has slipped into a technical correction as the AI Bubble Index climbs to an extreme level. After hitting a record high of $243 earlier this month, the shares have fallen 12.2% to $214. The pullback could continue, since the stock has also formed a rising wedge pattern. AI Bubble Index is Rising Top analysts have been warning about the artificial intelligence bubble.
In a statement last week, David Rosenberg warned that the bubble may burst as soon as next year, leading to a US recession. Ray Dalio, Bridgewater Associates’ founder, has constantly warned that the bubble may burst soon as US bond yields continue rising. Indeed, the closely watched ten-year bond yield jumped to a two-decade high of 5.3%. These warnings come at a time the AI Stock Bubble Index has jumped to the elevated level of 74.
If the trend continues, it may enter the extreme zone of 80 as soon as this week. This index looks at six measures, with valuation having the biggest weight of 25%. The other measures it looks at are private capital velocity and valuation expansion, gap between AI investment and disclosed revenue, and media and search attention. Read Also: Broadcom Stock Is Down 35% From Its Peak as AI Bubble Warnings Rise, but Analysts Stay Optimistic It also looks at market concentration, which looks at how AI equity performance depends on a narrow group of companies, and the scale of AI compute compared to near-term monetization.
Nvidia would be highly exposed if the AI bubble bursts. It is the biggest supplier of GPUs that power the AI industry. It is also a big investor in companies across all areas of the AI industry, including neoclouds, optics and photonics, and AI labs like OpenAI and Anthropic. On the positive side, Nvidia’s business has continued growing.
Its last earnings report showed that its revenue jumped to over $104 billion in the second quarter. Jensen Huang also hinted that the annual revenue will jump by over 70% next year, much higher than expected. Nvidia is also highly undervalued, with its forward price-to-earnings ratio of 22 being much lower than the five-year average of 42. This explains why the company recently announced a $150 billion share buyback.
Nvidia Stock Formed a Rising Wedge Pattern NVDA stock chart | Source: TradingView The ongoing NVDA stock retreat happened after it formed a rising wedge pattern, which is made up of two rising and converging trendlines. The breakdown happened as the two lines neared their convergence. Nvidia has dropped below the 50-day Exponential Moving Average (EMA), while the Supertrend indicator has turned red. Therefore, the most likely outlook is bearish, with the initial target being at $209, its lowest level on September 14.
A drop below that level will point to more downside to $200. Read Also: Nebius Stock Falls After Key Gartner Warning as Short Interest Nears 20% Image: Shutterstock