Key Insights
- Nvidia stock price has dropped below the 200-day moving average.
- Top big-tech names have committed to continue spending.
- Technical analysis points to a steeper NVDA stock crash in the near term.
Nvidia stock price plunged below the 200-day weighted moving average (WMA) as the ongoing rout in the semiconductor industry accelerated.
After peaking at $236 in June, the stock has now plunged to $190. This article explores whether this sell-off is justified amid the ongoing big-tech capital spending.
Nvidia Stock Has Dropped Below Key Support
Technicals show that the NVDA stock price has dropped below the important 200-day weighted moving average. This has happened for the first time since July 7.
Historically, a move below or above this average has led to major moves for the stock. For example, it jumped to $236 after crossing the average on April 9 when it was trading at $185.
A closer look also shows that the stock is about to cross the key support level of $190. That was its lowest level earlier this month. Dropping below that level will invalidate the double-bottom pattern and point to further downside.
If this happens, the next level to watch will be at $163, its lowest level on March 30th. This view is supported by the fact that it has formed a double-top pattern on the four-hour chart.
The bearish forecast will become invalid if the Nvidia stock price jumps above the key resistance level of $214. This resistance was the highest level on July 15 of this year. A move above this price will point to more gains, potentially to the year-to-date high of $236.
Big Tech Companies Plan to Boost Capital Expenditures
Nvidia stock price has dropped even as its biggest customers plan to boost their spending this year. In a statement on Wednesday, Meta Platforms said that it will spend between $130 billion and $145 billion in capex this year.
In its last financial results, the company said that it would spend between $125 billion and $145 billion. That is a sign that it is prepared to spend $5 billion more.
Meta’s spending is important because there have been concerns that it has overinvested in the data center industry. A recent report said that it was now considering leasing its extra space to other companies.
Microsoft also plans to boost its spending this year. It plans to spend $50 billion this quarter and $175 billion in the current calendar year. In a statement last week, Alphabet boosted its spending plans to $205 billion.
All this spending will benefit Nvidia, a company that supplies these firms with GPUs and other products. At the same time, the firm is expanding to the lucrative CPU market that is booming amid the rising demand for AI agents.
Circular Investment and AI Rout to Blame for Nvidia Stock Drop
The ongoing Nvidia stock price retreat is happening as investors rotate from AI companies. Just recently, stocks like Samsung, SK Hynix, Micron, and AMD have all plunged by double digits despite their strong revenues.
Another reason behind the sell-off is that investors are concerned about the circular nature of the AI industry. Basically, this is the process where Nvidia invests in its customers, who use the same cash to buy its products. By doing that, Nvidia’s revenue and its stock are boosted.
Nvidia has invested in several of its customers, including popular names like OpenAI, CoreWeave, IREN, and Nebius. Jensen Huang has vehemently rejected these claims and maintained that spending would do well even without these investments.
Nvidia stock is also struggling as investors assess the threat from Chinese AI companies. They are offering nearly identical solutions to American ones.
Moonshot’s Kimi K3 has become the biggest open-weight model. There is a fear that many enterprise companies will opt for the cheaper Chinese models in the long term.
Such a move would hurt Nvidia, which has made large investments in companies like OpenAI and Anthropic. On the positive side, the ongoing NVDA stock crash has made it a bargain, with the forward PE ratio falling to 21.
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