Nvidia shares have entered a technical correction after falling 12.2% to $214 from a record high of $243 earlier this month. The retreat followed a breakdown from a rising wedge pattern, which consists of two rising, converging trendlines. The breakdown occurred as the trendlines approached convergence.
The AI Stock Bubble Index has risen to an elevated level of 74. The index may enter the extreme zone of 80 as soon as this week if the trend continues. The index tracks six measures, with valuation carrying the largest weight at 25%. The other measures include private capital velocity and valuation expansion, the gap between AI investment and disclosed revenue, and media and search attention. The index also measures market concentration, assessing how AI equity performance depends on a narrow group of companies. The final measure compares the scale of AI compute with near-term monetization.
David Rosenberg warned in a statement last week that the AI bubble may burst as soon as next year, leading to a US recession. Bridgewater Associates founder Ray Dalio has repeatedly warned that the bubble may burst soon as US bond yields continue rising. The closely watched ten-year bond yield has jumped to a two-decade high of 5.3%.
Nvidia would be highly exposed if the AI bubble bursts. Nvidia is the biggest supplier of GPUs that power the AI industry. Nvidia also invests across all areas of the AI industry, including neoclouds, optics and photonics, and AI laboratories such as OpenAI and Anthropic.
However, Nvidia's business has continued growing. Nvidia's latest earnings report showed that revenue rose to over $104 billion in the second quarter. Jensen Huang hinted that annual revenue will increase by over 70% next year, much more than expected. Nvidia is highly undervalued, with a forward price-to-earnings ratio of 22 compared with the five-year average of 42. The low valuation explains why Nvidia recently announced a $150 billion share buyback.
Nvidia shares have dropped below the 50-day exponential moving average, while the Supertrend indicator has turned red. The most likely outlook is therefore bearish, with an initial target of $209, the lowest level on September 14. A decline below $209 would point to further downside to $200.
Nvidia Shares Drop 12.2% as AI Stock Bubble Index Hits 74
BenzingaShare
Summary
Nvidia shares fell 12.2% to $214 as the AI Stock Bubble Index hit 74, reflecting rising fear and greed index volatility. The stock broke down from a rising wedge pattern, raising concerns about a potential AI bubble. Analysts highlight Nvidia’s exposure due to its leading role in AI GPU supply. Despite the drop, Q2 revenue hit $104 billion, with over 70% growth expected next year. Traders are also keeping an eye on altcoins to watch amid shifting market sentiment.
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