AI trading took a hit on Monday as NVIDIA shares dropped 6.5%, dragging down the entire AI market. Super Micro Computer and Semiconductor manufacturing in Taiwan also saw declines of 8.5% and 3.8%, respectively. The three stocks fell a total of 4.9%, 7%, and 3.2% by midday. The drop was attributed to concerns about future demand for AI chips.
NVIDIA insiders, including CEO Jensen Huang, have been selling off their shares. Huang alone sold $31.6 million worth of shares in just two days. In June, he sold nearly $95 million. This insider selling has raised speculation about the confidence in the company’s future performance.
The valuations of AI companies like NVIDIA and Super Micro Computer have reached high levels, with NVIDIA’s price-to-earnings ratio above 70 and Super Micro Computer also being considered expensive. As investors gear up for the upcoming earnings season, where tech companies will report their second-quarter results, the focus is on demand for AI products and the potential for growth.
NVIDIA’s performance is crucial for the overall AI market, as the company’s success will benefit suppliers like Super Micro Computer and Taiwan Semiconductor Manufacturing Company (TSMC). The next month will be telling in terms of how demand for AI products will impact capital spending and revenue projections.
The high valuations and uncertainty around AI business models have led some investors, like the author Travis Houm, to avoid AI stocks for now. The risks are seen as too high compared to the potential rewards. The Motley Fool, which the author is affiliated with, has positions in and recommends NVIDIA and TSMC. They also maintain a disclosure policy.
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https://www.fool.com/investing/2024/06/24/nvidia-stock-drops-65-dragging-artificial-intellig/