Why has Nvidia’s stock been losing so much market value? The decline explained

Nvidia, one of the giants of the tech industry, has seen its stock price fall dramatically this week. Over the last five days of trading, the stock price has fallen by nearly 17 percent, from $127.91 to $106.21. For those who purchased the stock as its price surged earlier this year, the sudden drop has caused serious concerns. Still, since the start of the year, Nvidia’s stock price has doubled, and some market analysts, those who are more bullish in their position towards AI, believe that the stock is a good place to park funds. Nevertheless, their expectation that the value increase is in part based on a hope that their own holdings will maintain or increase in value, which requires demand to continue growing and for the company to show that the money that has been pouring in will be able to create substantial returns.

Since early August, markets have struggled as investors recalibrated the value of technology stocks after the AI hype led prices to rise rapidly with little return left to show. This is not to say that AI will not generate substantial profits in the long run. But, the amount of money investors poured into these companies may have artificially increased the price beyond what they will be able to deliver in the coming years.

We must wait and see...

For investors, the Bureau of Labor Statistics’ August Employment Report, set to be released tomorrow, Friday, September 6, and the decision by the Federal Reserve to adjust the federal funds rate will be critical in how they approach Nvidia during this quarter. An uptick in unemployment and a subsequent economic slowdown could make tech a less attractive place for investors, as the returns are not likely to be seen while economic conditions remain tampered by high rates and decreased consumer spending. Tech stocks could see investors reduce their holdings even further if the Fed keeps the federal funds rate at its current level. However, if a strong job’s report comes through and the Fed moves forward with a rate cut, investors may feel more comfortable parking funds in Nvidia and other tech companies.

The Department of Justice investigating Nvidia

In June, the New York Times reported that the Department of Justice and the Federal Trade Commission would open an investigation into Nvidia for antitrust violations.

Bloomberg reported on Wednesday, September 4, that the company had been subpoenaed by the Department of Justice. The company has denied these reports but confirmed its willingness to cooperate with federal investigators. Though Nvidia is a major competitor in the design and production of computer chips, its massive growth over the last two years has resulted from its dominance in AI-based products and the hope that it will be able to revolutionize business practices. However, an investigation into anticompetitive behavior could threaten their dominate position within the AI-development space, and while outcomes would likely be better for consumers, Nvidia losing market power would likely harm their bottom line.