Nvidia NVDA.US lost $400bn in market value in a week, but Goldman still "stands" it: it's an overreaction

After falling nearly 10% on Tuesday, Nvidia NVDA.US lost about $400bn in market value last week. Despite the sell-off, Toshiya Hari, chief analyst at Goldman, maintained a buy rating on the chip giant and said he agreed with the idea that the stock had been oversold.

The S&P 500 had its worst September start since 1953, according to Bespoke Investment Group, with technology stocks one of the biggest factors in the turmoil, though the index recovered some ground on Monday.

"Nvidia has done poorly recently, but we still like the stock," Hari said at Goldman's 2024 Communications and Technology conference. "First, the demand for accelerated computing is still very strong. We tend to spend more time on the hyperscale companies like Amazon, Google, Microsoft, but you're going to see the demand range out to enterprises, even to sovereign countries."

Nvidia reported its second-quarter earnings on August 28, and while the results beat expectations, they were not good enough for Wall Street, leading to the sell-off. While Nvidia's revenue in Q2 was above the $41bn that Wall Street had expected, its margins were the lowest since the fourth quarter of 2023.

One of the big debates around Nvidia has been whether its profit momentum can be sustained. Hari said investors were questioning whether the situation would not only be in 2025 but also in 2026.

The Goldman stock research team wrote in a recent report that investors' views on artificial intelligence "have swung nearly 180 degrees since the beginning of 2023". Investors' patience is running out and they want to see, not be told, about improvements in AI-driven revenue streams and margins.

Still, the team wrote, with generative AI and other profound generational technology shifts, "judging on the short-term cost and return economics will be futile". The focus will be on the long term. Goldman estimates that generative AI will start to make a material contribution to industry growth by the second half of 2025.

"Their competitive position is still very strong and we do believe that Nvidia is the preferred play in the commercial chip space, even with custom chips, because of the innovation velocity," Hari said of Nvidia.

Nvidia shares rebounded 3.54 per cent on Monday to close at $106.47. The stock has risen 115 per cent this year.