AI innovation vs. investor fickleness

Nvidia losing $600 billion in value in a single day was, admittedly, quite a lot. But it shouldn’t have come as too much of a surprise. The Company had been on one hell of a run. At the start of this year the share price was ten times what it had been two years prior, with a lot of that increase justifiably driven by the company’s stellar performance in a market it clearly dominates. 

However, when a stock performs as well as Nvidia’s does, a good chunk of that performance will have been driven by investors simply buying in to ride the trend, without performing much in the way of research and with scant regard to the fundamentals. It doesn’t take much in the way of bad news for these ‘good time’ momentum investors to get rattled and jump ship, with little understanding of what the bad news really means and even less desire to stick around long enough to find out. 

In other words, share prices that have been rising as rapidly as Nvidia’s will always be susceptible to outsize movements, even when their market capitalisation is $3 trillion plus. In the case of Nvidia this is exacerbated by the inherent uncertainty of the long-term outlook for the business, with few of its customers having yet made much of a return on their colossal investments. The Company’s technological advantages are little changed by yesterday’s news however, and advancements in AI innovation could indeed be a precursor to further demand for Nvidia’s offerings, as Nvidia itself contends. 

The doom-mongers who are declaring this the beginning of a catastrophic reversal of the US’s AI-led bull run are likely being a little premature, therefore, although some rebalancing might not be altogether unwelcome. Particularly if some of that capital finds its way back to UK shores.