Nvidia Plummets 3.7% Amid AI Valuation Fears and Sector-Wide Turbulence

Summary
• Nvidia’s stock slumps to $171.10, down 3.7% from its $177.72 close
• Intraday range narrows to $170.31–$176.13 amid heavy volume of 15.5M shares
• Analysts debate sustainability of 45x P/E amid slowing AI server demand
• Options market sees 2025-12-26 expiring puts surge as bearish sentiment intensifies

Nvidia’s sharp intraday decline has ignited a firestorm of speculation about the AI chip giant’s valuation sustainability. With the stock trading near its 52-week low of $86.62 and a dynamic P/E of 40.44, investors are recalibrating expectations as sector peers like AMD also falter. The move coincides with a surge in put options and a bearish MACD crossover, signaling a critical inflection point for the semiconductor leader.

Valuation Concerns and AI Demand Slowdown Trigger Sell-Off
Nvidia’s 3.7% drop reflects growing skepticism about its 45x P/E ratio amid slowing AI server demand and intensifying competition. Recent news highlights Goldman Sachs’ warning about AI infrastructure bottlenecks and Morgan Stanley’s caution that hyperscaler demand may plateau. Analyst Peter DiCarlo’s $225 price target for Q1 2026 contrasts with bearish sentiment, but the stock’s 15% pullback from October’s $207 high has triggered profit-taking. The sell-off aligns with a broader sector correction, as AMD also declines 5.23%, underscoring investor anxiety about AI-driven growth sustainability.

Semiconductor Sector in Retreat as AI Optimism Fades
The semiconductor sector is broadly under pressure, with AMD’s 5.23% decline mirroring Nvidia’s bearish momentum. Morgan Stanley’s recent note identifying Broadcom and Astera Labs as 2026 top picks highlights shifting investor priorities toward diversified chipmakers. While Nvidia dominates 80% of the AI accelerator market, rising competition from Alphabet and cost-effective inference chips is eroding its pricing power. The SIA’s latest data shows global semiconductor sales grew 4.7% month-to-month in October, but sector-wide profit margins are tightening as supply chains adjust to AI demand fluctuations.

Bearish Positioning and High-Leverage Options for Volatility Play
• MACD: -2.31 (bearish crossover), RSI: 49.85 (neutral), 200D MA: 156.65 (below price)
• Bollinger Bands: Price at 174.52–187.08 lower band, 30D MA: 184.53 (resistance)
• Support/Resistance: 179.83–180.31 (key short-term hurdle)

Technical indicators suggest a continuation of the bearish trend, with the stock trading below its 200-day moving average and MACD in negative territory. The options market offers high-leverage plays for volatility traders. Two top options stand out:

• NVDA20251226C175 (Call):
- Strike: $175, Expiry: 2025-12-26
- IV: 32.72% (moderate), Leverage: 72.42%, Delta: 0.378 (moderate), Theta: -0.4347 (high decay), Gamma: 0.0409 (high sensitivity)
- Turnover: $23.06M (liquid)
- Payoff: In a 5% downside scenario (ST = $162.55), payoff = max(0, 162.55 - 175) = $0. This contract offers high leverage for a potential rebound above $175, with strong gamma to benefit from price swings.

• NVDA20251226C177.5 (Call):
- Strike: $177.5, Expiry: 2025-12-26
- IV: 32.15% (moderate), Leverage: 111.45%, Delta: 0.2798 (moderate), Theta: -0.3455 (high decay), Gamma: 0.0368 (high sensitivity)
- Turnover: $4.56M (liquid)
- Payoff: In a 5% downside scenario (ST = $162.55), payoff = max(0, 162.55 - 177.5) = $0. This contract provides amplified exposure to a potential bounce above $177.50, with high leverage and gamma to capitalize on volatility.

Aggressive bulls may consider NVDA20251226C175 into a break above $175, while NVDA20251226C177.5 offers high-risk, high-reward potential for a short-term rebound. Both contracts benefit from high gamma and moderate IV, ideal for directional bets in a volatile environment.

Backtest Nvidia Stock Performance
The backtest of NVDA's performance after a -4% intraday plunge from 2022 to now shows favorable results. The 3-Day win rate is 60.98%, the 10-Day win rate is 59.87%, and the 30-Day win rate is 65.63%. Additionally, the maximum return during the backtest period was 15.29%, indicating that NVDA has the potential for positive gains following a significant pullback.

Critical Support Levels and Sector Rotation to Watch
Nvidia’s 3.7% decline has exposed vulnerabilities in its 45x P/E valuation, with the stock now trading near its 52-week low. The bearish MACD and RSI neutrality suggest further consolidation below $180.31 is likely, while the 200-day MA at $156.65 remains a critical long-term floor. Investors should monitor AMD’s -5.23% move as a sector barometer and watch for a potential $160–$165 retracement as per Peter DiCarlo’s bear case. For now, NVDA20251226C175 and NVDA20251226C177.5 offer high-leverage options for volatility traders, but caution is warranted until the stock retests key resistance at $180.31.