Nvidia's stock is selling off: Risks, opportunities, and what could be next

Key points:

• High volatility: Nvidia's stock is experiencing significant fluctuations, with shares down again in pre-market trading.
• Broader market concerns: The ongoing sell-off is driven by factors such as tariff pressures, a fraud investigation in Singapore, and concerns over the sustainability of AI spending.
• Strong analyst sentiment: Despite the recent decline, nearly 90% of analysts maintain a positive outlook on Nvidia, with a consensus target price suggesting a large potential upside.

Nvidia’s stock is experiencing high volatility at the moment. After trading down 4% in pre-market trading, it rebounded to around breakeven just after the opening bell. The AI powerhouse has already fallen nearly 9% on Monday, wiping out six months of gains and pulling back to September levels. The stock is now down almost 19% in the last two weeks and has declined 15% this year. Nvidia's market capitalization has dropped below USD 3 trillion, a stark reminder of how quickly market sentiment can shift.

Why is Nvidia's stock down?

Several key factors have contributed to the sell-off in Nvidia

• Tariff troubles: The Trump administration’s new tariffs on Canada, Mexico, and China have rattled markets. The aggressive tariff plans, along with concerns about further export restrictions on AI chips, could significantly impact Nvidia, which generates a considerable chunk of its revenue from China. This could cut Nvidia’s revenue significantly this year.
  
  
• Fraud investigation in Singapore: The Singaporean authorities recently arrested three men in connection with a suspected smuggling operation involving Nvidia chips. The individuals are accused of misrepresenting the end destination of US-made servers, potentially breaching American export controls by shipping restricted technology to Malaysia. The case has sparked concerns about a broader network of shadow trade that could undermine US export restrictions aimed at curbing China's AI advancements. Singapore's government emphasized that it would not tolerate being used as a conduit for circumventing international trade laws, highlighting the geopolitical risks Nvidia faces as its chips remain highly sought after in China despite export bans.
  
  
• Earnings reaction: Despite beating revenue expectations, Nvidia's recent earnings report didn't prevent the sell-off. Investors appear to be jittery over the sustainability of AI spending and potential competition, including from Nvidia's own customers developing in-house AI chips.
  
  
• The AI trade unraveling: Broader weakness in AI stocks added fuel to the fire. The excitement surrounding AI investments has cooled, leading to a broader revaluation of high-flying tech stocks. The 'Magnificent 7' tech giants, including Nvidia, have struggled to maintain their dominance, with none of them ranking among the top 50 performers in the S&P 500 this year.

Bull vs bear: Where does Nvidia go from here?

The bull case: Nvidia remains a leader in AI hardware, with strong potential for growth among hyperscalers that could drive demand for its advanced chips. The company's robust market position and solid fundamentals mean it could see a strong rebound if AI investment regains momentum. Nvidia's dominance in GPU technology, combined with its ecosystem of software and tools, creates a competitive moat that is difficult for competitors to breach. The stock's current lower valuation compared to its historical highs may present an attractive entry point for long-term investors if the broader market conditions stabilize.

The bear case: However, the risks are real. The Singapore fraud case not only exposes Nvidia to potential regulatory scrutiny and fines but also risks reputational damage that could affect its relationships with major tech partners like Microsoft, Google, and Meta. Additionally, the Chinese AI startup DeepSeek has shown it can build competitive AI models with fewer chips, raising the specter of lower demand for Nvidia's high-end products. Geopolitical risks and potential regulatory actions could further hinder Nvidia's sales in key markets.

What do analysts say?

Despite the recent sell-off, analyst sentiment around Nvidia remains largely positive. According to Bloomberg data, nearly 90% of analysts have a 'Buy' or 'Outperform' rating on the stock, with a consensus 12-month target price of USD 173.23, representing a potential upside of over 50% from current levels.

What could retail investors do?

• Stay calm: It’s natural to feel uneasy during a sell-off, but overreacting can lead to costly mistakes. The recent sell-off might be a reflection of broader market jitters rather than a sign of company-specific doom.
• Watch for catalysts: Nvidia’s upcoming GTC event on March 17 could offer new insights and potentially reignite investor interest.
• Evaluate your investment horizon: If you’re a long-term investor, this pullback could present a buying opportunity. However, if your investment horizon is shorter, it might be wise to stay on the sidelines until the market finds stability.
• Diversify: If you hold a lot of Nvidia or other tech stocks, consider balancing your portfolio with more stable assets. As the AI trade unwinds, a well-diversified portfolio can help cushion the blow.

Nvidia’s recent sell-off serves as a reminder that even market darlings aren’t immune to volatility. While there are significant risks ahead, Nvidia’s strong market position and long-term potential could make it a compelling option for patient investors. As always, stay informed, remain level-headed, and ensure your investment strategy aligns with your financial goals.