Stock falls 5.7% on profit-taking and valuation concerns.
Nvidia shares suffered their biggest daily drop since January on Wednesday, as investors took profits after the chipmaker’s market capitalization briefly hit the $1 trillion mark earlier this week.
The stock fell 5.7% to close at $389.46, wiping out about $58 billion of its value. The decline was preceded by a massive rally, with Nvidia shares surging more than 250% from the October low of $108.13, driven by strong demand for its graphics and artificial intelligence chips.
Nvidia’s market cap reached $1.01 trillion on Monday, making it the seventh US company to join the exclusive club of trillion-dollar firms. The company also reported stellar quarterly results last week, beating analysts’ expectations on both revenue and earnings.
However, the meteoric rise in Nvidia shares also raised some valuation concerns, as the stock traded at a hefty premium to its peers. According to FactSet, Nvidia had a trailing price-to-earnings ratio of 203.91 as of Wednesday, compared to 35.77 for Intel and 45.15 for AMD.
Some analysts have also warned that Nvidia could face some headwinds in the near term, such as regulatory hurdles for its planned acquisition of British chip designer Arm, supply chain constraints amid a global chip shortage, and increasing competition from rivals like AMD and Intel.
Board member sells entire stake
Among the sellers of Nvidia shares was board member Tench Coxe, who recently sold his entire stake of 1.5 million shares for about $600 million, according to regulatory filings. Coxe had been a long-time investor in Nvidia since 1993 and joined its board in 2004.
Nvidia was not the only software firm that saw its shares slide on Wednesday. C3.ai Inc, a provider of enterprise artificial intelligence software, fell 9% to $127.03 after issuing a weak sales forecast for the current quarter.
C3.ai disappoints with sales outlook
The company expects revenue of $52 million to $53 million for the quarter ending July 31, below analysts’ average estimate of $55.6 million, according to Refinitiv. The company also reported a wider-than-expected loss for the previous quarter.
Despite the decline, C3.ai shares are still 260% more expensive than a year earlier, when the company went public at $42 per share in December 2020. The company has benefited from the growing adoption of cloud-based AI solutions by businesses across various industries.
C3.ai’s founder and CEO, Thomas Siebel, said he was confident about the company’s long-term prospects and growth opportunities. He also announced a strategic partnership with Google Cloud to deliver AI applications and solutions to Google Cloud customers.
AI market poised for rapid growth
Both Nvidia and C3.ai are among the leading players in the artificial intelligence market, which is expected to grow rapidly in the coming years as more companies leverage AI to enhance their products and services, optimize their operations and improve their customer experience. According to a report by Grand View Research, the size was valued in the global AI market at $62.4 billion in 2020 and is projected to grow at a 40.2% annual rate with compounding from 2021 to 2028.
