1. New Competition Risk: The Meta-Google Chips Report
The most immediate cause for the recent significant drop is a specific report published this week:
Meta's Consideration: Reports suggest that Meta Platforms (Facebook/Instagram), one of Nvidia's largest and most important customers, is in talks with Alphabet (Google) to potentially use or rent Google's Tensor Processing Units (TPUs)—their custom AI chips—in their data centers.
Why This Matters: This news signals a massive threat to Nvidia's near-monopoly. If a key customer like Meta starts diversifying its AI chip supply away from Nvidia's GPUs to use a competitor like Google's TPUs, it confirms that alternatives are viable and that Nvidia's market share is at risk in the long term.
2. High Valuation and "AI Bubble" Jitters
Even though Nvidia's underlying business performance has been phenomenal, the stock had risen so much that any piece of negative news prompts a quick correction.
Priced for Perfection: The stock trades at an extremely high valuation (high Price-to-Earnings ratio), meaning investors are pricing in many years of near-perfect, exponential growth.
Profit Taking: When news like the Meta-Google report hits, institutional investors who bought the stock at much lower prices often seize the opportunity to take profits, leading to a sharp sell-off.
The Big Question: Investors are worried that the enormous global spending on AI chips and data centers—which Nvidia has been the primary beneficiary of—may not ultimately translate into proportional profits for the companies using the chips (like Amazon, Meta, and Microsoft), leading to a slow-down in future orders for Nvidia.
3. Stock is trading below it's SMA 100. Now is a good prize to enter for position trades (holding for a few months). Will enter more when market shows weakness. Stop loss below SMA 200.
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