Nvidia Stock Price Declines Into Correction Territory

Nvidia shares continued their decline on Monday, sinking more than 6 per cent as the company entered what is known as correction territory.

Monday's trading session marked the third consecutive session in which the chip maker's stock fell, declining more than 12 per cent during the three-day slide and exceeding the 10 per cent correction threshold.

Stocks enter correction territory when shares fall between 10 and 20 per cent after a recent high. Nvidia's dip dragged down other artificial intelligence companies' stock prices. Super Micro Computer, the best performer on the S&P 500 this year, were down 8.65 per cent as trading closed, while Taiwan Semiconductor Manufacturing fell 3.51 per cent.

Nvidia's slide comes as investors begin to move out of AI stocks. Art Hogan, chief market strategist at B Riley Wealth, said the withdrawal in Nvidia is “healthy” “Trees don’t grow to the sky. The good news is that investors are rotating into other sectors like energy, financials and utilities, which are all up more than 1 per cent,” he said.

Nvidia briefly overtook Apple and Microsoft to become the world's most valuable company last week, but the company has lost more than $400 billion in market capitalisation since then.

The chip maker's valuation is at $2.925 trillion, now trailing Microsoft ($3.331 trillion) and Apple ($3.208 trillion). But Wall Street remains bullish on Nvidia. Jefferies analysts raised their price target from $135 a share to $150 in a note at the weekend.

Even with the three-day slide, Nvidia's shares are still up more than 147 per cent this year, making it the second-best performing company on the S&P 500. But its rise has also led some analysts to consider whether its strong valuation is sustainable.

“Technically speaking, the stock has been showing some bearish patterns in recent trading. It was extremely overbought on several levels,” Mr Hogan said.

Nvidia's strength has boosted optimism in AI, which has led to record-breaking years on Wall Street even amid a delay in the Federal Reserve's US interest rate cuts. The S&P 500 briefly crossed 5,500 for the first time last week, while the Nasdaq Composite hit its own high of 17,936 during intraday trading.

Meanwhile, the Dow Jones broke the 40,000 last month on softer-than-expected inflation data. The Fed's preferred inflation metric – the Personal Consumption Expenditures Price Index – is due to be released on Friday.