NVIDIA (NVDA) Shares extended their recent streak of declines on Wednesday, marking an 8.5% drop from the all-time high they hit last week. But the world's largest ai chip maker is starting to make moves that could have even bigger implications for investors and the broader tech sector.
Nvidia shares have added more than $1 trillion in value this year, a staggering performance for a stock that size, driven in part by its dominant position in perhaps the biggest investment surge since the birth of the Internet.
CEO Jensen Huang told investors in February that a wave of investments in artificial intelligence will “open up a whole new world of applications that are not possible today,” while creating a market worth “hundreds of billions.” of dollars” each year.
“We started the ai journey with hyperscale cloud providers and consumer Internet companies,” Huang said. “And now every industry is on board, from automotive to healthcare, financial services, industrial, telecommunications, media and entertainment.”
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Investors have been inclined to believe him: Since he co-founded the group in 1993 and took it public in 1999, Nvidia has gone from a niche video game chip maker to the world's third-largest tech giant. with a market value of more than 2.2 trillion dollars.
In fact, a recently launched ETF by Leverage Shares, which aims to generate returns based on long positions in Nvidia with three times leverage, surpassed $100 million in assets this week.
Nvidia's rise sparks big short bets
The parabolic rise in Nvidia shares began when the group surprised Wall Street with a revenue forecast that exceeded analysts' forecasts by up to 75%.
But now it's starting to show cracks on the outside.
Nvidia stock is the third best-selling stock in the market, according to recent data from S3 Partners, with about $18.3 billion in bets against it.
This compares with around $20.17 billion in short-term interest on Microsoft. (MSFT) and 18.72 billion dollars in Apple (AAPL) . Nvidia's short interest exceeds even Tesla's (TSLA) which is set at $17.01 billion, despite the fact that the stock of electric vehicles has fallen more than 30% so far this year.
Short sellers bet against a company by borrowing shares and selling them. If the stock price drops, short sellers will buy back the stock at a lower price, return the borrowed shares (for a fee), and pocket the difference.
Related: Nvidia crushes profits, stock soars. Is it time to buy AMD?
That tactic hasn't proven profitable, of course, and short sellers have lost nearly $7 billion in market value losses as of last month, but they're still contributing to bets on Nvidia's downfall.
Nvidia Volatility Is Highest Among Magnificent 7 Peers
The renewed short interest could explain the second of the stock's most concerning features: its increasing volatility.
Traders often obtain a figure from the options market, known as implied volatility, to gauge the chances of a particular stock making outsized moves over the next month.
Nvidia's implied volatility, at 0.6392, is now more than double its level at the beginning of the year, according to data from AlphaQuery. The company obtains the price figure for at-the-money call options, where the stock price and the option strike price are identical.
Compare that to just a 7.75% rise in the CBOE Group's VIX index, the market's preferred volatility gauge, which measures 30-day volatility expectations across a broad range of S&P 500 options, and the potential for The action for large swings becomes even clearer.
Nvidia's implied volatility levels are also three times higher than those of Microsoft and Apple, and more than 34% higher than the last fix set for Tesla.
Related: Analyst Reveals New Tesla Price Target, Mag 7 Risk as Stock Extends Decline
The most volatile stock on the market, at least in terms of options expectations, is bitcoin-focused MicroStrategy. (MSTR) which is up more than 152% this year alone amid the recent record-breaking streak for the world's largest digital currency.
Consider, also, that more than $100 billion in Nvidia stock changed hands last Friday, when the stock closed at an all-time high of $972.32. That volume was only surpassed by the $150 billion in Tesla shares that were traded ahead of its addition to the S&P 500 in 2021.
This could add a significant new dimension to investors' focus at Nvidia's upcoming GPU technology Conference, scheduled to begin March 18 in San Jose, California, which will likely set the centerpiece of ai ambitions for next year. .
More ai actions:
- Analyst Reveals New Broadcom Stock Price Target Linked to ai
- ai stocks Soar on New Guidelines (It's Not Nvidia!)
- Nvidia CEO Huang discusses the enormous opportunity of ai
Trading.biz analyst Corey Mitchell, however, says it's too early to say whether Nvidia's recent price moves and increasing volatility suggest a more worrying trend.
“In 2023 and 2024, pullbacks of less than 12% have caused the price to rise. Pullbacks of more than that have indicated choppy trading and larger declines,” he said. “Hectic trading means little to no progress above the recent high of $974.”
Nvidia shares fell 3.4% in early trading on Wednesday, changing hands at $887.88. The stock hit an all-time high of $974 earlier this month and is up more than 84% since the beginning of the year.
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