Nvidia's Stock Journey: A Temporary Dip in a Decade-Long Surge
1min read In recent months, Nvidia's stock has witnessed a decline, yet investors are advised to remain steadfast. Currently, Nvidia's shares have slipped to $116, marking a 14% drop from their historical peak of $135 in June. During the summer downturn, prices fell as low as $98, representing a 38% decrease. Nevertheless, over the past five years, the stock has surged nearly tenfold.
Investors should not rush to sell; studies indicate that such declines are normal and anticipated for stocks experiencing exponential growth. Nvidia's downward trend has been fueled by several factors. As the stock soared to $135, investors cashed in profits. Additionally, emerging competition from chipmakers like AMD has posed a threat to Nvidia's sales, making AMD an attractive option. While demand for AI chips grows rapidly, it is clear that growth for all chipmakers will likely slow in the coming years.
This decline doesn't mark the end of Nvidia's remarkable journey. For rare stocks with explosive growth, substantial pullbacks are entirely normal. An analysis by Trivariate Research of 84 stocks that increased tenfold in five years shows an average peak retracement of 48%. The most severe sell-offs are not necessarily alarming.
Nvidia is fundamentally different from stocks driven by temporary trends, such as GameStop. Analysts, based on FactSet data, still forecast that Nvidia will achieve double-digit annual earnings growth in the years ahead. Presently, Nvidia trades at a lower price to short-term earnings expectation ratio, suggesting continued earnings growth could lift stock prices.
Nvidia's prospects parallel those of Tesla. Tesla’s stock increased over tenfold in the five years leading up to May 2017, driven by the booming demand for electric vehicles. In that period, Tesla’s stock experienced a maximum retracement of 50%, which persisted for a year and a half. Since then, the stock has risen twentyfold, proving overall industry growth favorable for Tesla.
Similarly, Nvidia might share a comparable future. Investors simply need patience to reap long-term rewards.