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Nvidia Stock’s Tipping Point: Identifying the Catalysts that Could Derail the Chip Champion

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Is Nvidia (NASDAQ:NVDA)’s publicity a jinx? CEO Jensen Huang appeared on 60 Minutes on April 28. That’s a sign you’ve made it, but it reminds readers that Nvidia stock represents one of only four companies with a market capitalization of over $2 trillion. It could be a sign that the investing gods are setting up the AI champion for a big fall.

I think Huang is one of America’s best CEOs, tech or non-tech, so I’m the last person who would advocate that its share price is ready to go into the toilet. However, as Murphy’s Law dictates, “What can go wrong will go wrong. So what could derail Nvidia stock in its climb to $6 trillion? Here are three possible hypotheses.  

Nvidia Stock and a Reversion to the Mean

I thought I’d throw out the most obvious of the three hypotheses first. 

“Mean reversion is a financial theory that suggests asset prices will eventually return to their long-term mean or average. This concept is grounded in the belief that asset prices and historical returns will gravitate toward a long-term average over time,” Investopedia’s website states. “The greater the deviation from this mean, the higher the probability that the asset’s price will move closer to it in the future.”

So, let’s consider NVDA stock’s history. 

The beginning of Nvidia’s rise to $2 trillion status began in October 2022, when it bottomed around $112. Through its March 2024 all-time high of $974, it was up 770%. 

Nvidia’s Share Price – Highs and Lows 2020-2024

YearHighLowAverage
2024$974.00$473.20$723.60
2023$505.48$140.34$322.91
2022$307.11$108.13$207.62
2021$346.47$129.90$238.19
2020$147.27$59.11$103.19

If you remove 2024 from the calculation, the historical norm is in the $200s. While I don’t see a correction down to that point, its share price could fall by 50% over the next 24-36 months if AI turns out to be less than a “new industrial revolution,” as Huang has called it.    

Increased Competition Is Coming for Nvidia

Nvidia has a first-mover advantage here. It moved hard into AI more than a decade ago, and it took the technology this long to catch up to it. That’s why its shares are up nearly 200% over the past year. 

Yahoo Finance quoted Bank of America analyst Vivek Arya’s comments in mid-April about Nvidia.   

“There are some market factors such as the recent rise in inflation, volatility (VIX), AI stock fatigue, rotation towards more cyclical sectors and possibly some pruning ahead of upcoming earnings season,” Arya said. “On a fundamental basis we have also heard of investor concern around rising competition and reducing lead-times (suggesting decelerating demand) for Nvidia GPU accelerators (though expected as new Blackwell demand grows).”

There’s no question that Advanced Micro Devices (NASDAQ:AMD), Intel (NASDAQ:INTC), and all the other big chip companies are looking to knock off the reigning AI champion.

I’m not sure they can do so with Nvidia’s upcoming release of Blackwell, the world’s most powerful AI and one of the most expensive at $30,000 to $40,000 a pop. The company is said to have spent $10 billion developing Blackwell.   

Supply Falls Apart

Nvidia reported its Q4 2024 results in February. The old news is that they were otherworldly. Huang said in the analyst conference call that its supply issues were waning. 

“Overall, our supply chain is just doing an incredible job for us,” the CEO said, according to Business Insider. “Everything from the wafers, the packaging, the memories, all of the power regulators, to transceivers and networking and cables, you name it.”

Despite Huang’s enthusiasm for ramping up supply, demand is certain to continue exceeding it for the foreseeable future. If something political happens in Taiwan that slows shipments, Nvidia cannot remedy the situation in the near term.

That would be a kick in the groin for its share price, but who am I kidding? It isn’t happening. Nvidia is too well-run for that to happen. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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