- Nvidia shares experienced a significant decline, raising concerns ahead of a crucial AI conference.
- Despite a recent drop, Nvidia’s value surged by over $1 trillion this year, driven by an AI investment surge.
- CEO Jensen Huang foresees vast opportunities in AI across industries.
- Short interest in Nvidia surges, exceeding even that of tech giants like Microsoft and Apple.
- Implied volatility for Nvidia has doubled since the start of the year, surpassing peers and indicating potential for significant fluctuations.
- Market dynamics suggest heightened scrutiny on Nvidia’s upcoming GPU Technology Conference.
Main AI News:
The descent of Nvidia shares persisted Wednesday, witnessing an 8.5% decline from their recent zenith last week. However, the paramount AI-chip producer is now showcasing maneuvers that may carry even weightier consequences for investors and the expansive tech realm.
This year alone, Nvidia shares have surged by over $1 trillion in value, an astonishing feat for a stock of its caliber, fueled partly by its hegemonic stance in what could be deemed the most significant investment boom since the inception of the internet.
In February, CEO Jensen Huang prophesied to investors that an influx of investment into artificial intelligence would “usher in an entirely new realm of applications not currently feasible,” concurrently birthing a market estimated to be worth “hundreds of billions of dollars” annually.
“We embarked on the AI journey alongside hyperscale cloud providers and consumer internet giants,” remarked Huang. “Now, every sector, from automotive to healthcare, financial services to telecommunications, media to entertainment, is aboard.”
Investors have embraced his vision: since co-founding the company in 1993 and taking it public in 1999, Nvidia has evolved from a specialized manufacturer of videogame chips into the world’s third-largest tech behemoth with a market capitalization surpassing $2.2 trillion.
In a notable development, an ETF recently launched by Leverage Shares, designed to yield returns based on long positions in Nvidia with threefold leverage, exceeded $100 million in assets this week.
Nvidia’s meteoric rise spawns substantial short positions
The exponential surge in Nvidia shares commenced when the company startled Wall Street with a revenue projection that outstripped analysts’ expectations by up to 75%.
Yet, there are signs of fissures emerging in its facade.
According to recent data from S3 Partners, Nvidia shares rank as the third-most-shorted stock in the market, with approximately $18.3 billion in short positions against it.
This eclipses the short interest in Microsoft, estimated at around $20.17 billion, and Apple, with $18.72 billion. Notably, Nvidia’s short interest even surpasses that of Tesla, standing at $17.01 billion, despite the electric vehicle company’s share price plunging by over 30% thus far this year.
Short-sellers capitalize on a company’s decline by borrowing shares and selling them. Should the stock price decline, short-sellers repurchase the shares at a lower price, return the borrowed stock (incurring a fee), and pocket the difference.
While this strategy hasn’t proven lucrative, short sellers faced nearly $7 billion in mark-to-market losses as of last month. Nonetheless, they continue to amplify their bets on Nvidia’s downturn.
Nvidia’s volatility reigns supreme among its peer group
The resurgence in short interest might elucidate another troubling facet of the stock: its escalating volatility.
Traders often derive implied volatility, a metric from the options market, to assess the likelihood of a particular stock experiencing substantial fluctuations over the ensuing month.
According to data from AlphaQuery, Nvidia’s implied volatility stands at 0.6392, more than doubling since the beginning of the year. This figure is derived from the pricing of at-the-money call options, where the stock price and the option’s strike price coincide.
In contrast, the CBOE Group’s VIX index, a widely used volatility gauge measuring expectations of 30-day volatility across a broad spectrum of S&P 500 options, has only seen a 7.75% uptick. This underscores Nvidia’s potential for pronounced oscillations.
Nvidia’s implied volatility levels dwarf those of Microsoft and Apple by threefold, and exceed the last recorded figure for Tesla by over 34%.
MicroStrategy, focused on Bitcoin, claims the mantle of the market’s most volatile stock, particularly in terms of options expectations. The company has surged by more than 152% this year alone amidst a flurry of record-breaking highs for the world’s premier digital currency.
It’s worth noting that trading volume for Nvidia surpassed $100 billion last Friday, when the stock concluded at an all-time peak of $972.32. This volume ranks second only to Tesla’s $150 billion trading volume preceding its inclusion in the S&P 500 in 2021.
These dynamics could add a substantial new dimension to investors’ scrutiny of Nvidia’s forthcoming GPU Technology Conference, scheduled to commence on March 18 in San Jose, Calif. This event is poised to delineate the focal point of AI aspirations for the ensuing year.
Conclusion:
The recent challenges faced by Nvidia, including significant share decline, increased short interest, and surging volatility, underscore potential shifts in investor sentiment. While the company’s dominance in AI remains undisputed, these developments may prompt market participants to reassess their strategies and approach to Nvidia’s stock amidst uncertainties in the tech sector.
