Why Nvidia Stock Just Crashed 6.6%
What happened
Well, it's looking like another miserable day for stock markets on Monday, with the Dow down 1.7% and the tech-heavy Nasdaq off 2.6%. Once again, semiconductor stock Nvidia (NASDAQ: NVDA) is leading tech stocks lower as its shares had slumped 6.6% by 10:25 a.m. ET today.
The most obvious answer is that investors are favoring "cheap" semiconductor stock Intel (NASDAQ: INTC) over "expensive" semiconductor stock Nvidia today, especially because Intel had some good news to report last week.
Image source: Getty Images.
So what
On Friday, Intel announced that it has chosen to locate two new chip factories near Columbus, Ohio, picking the city from a field of 40 locations that had competed for the investment. Construction will commence later this year, and production should start in 2025. And as The Wall Street Journal, reports, the $20 billion that Intel will be investing in Ohio is only part of a $100 billion investment plan for building out new fab capacity.
Intel says its intention is to grow its share of the $500-billion-a-year market for semiconductors, which by implication means it plans to take share away from Nvidia. Helping it with that task will be economic incentives from the State of Ohio, which says it has offered Intel "tax breaks linked to job creation and infrastructure spending, including for site construction," the Journal says.
Now what
So good news for Intel might be bad news for Nvidia -- one possible reason Nvidia stock is down today. On the other hand, Intel stock is also down today, losing 1.2%. So today's sell-off isn't entirely a case of "what's good for Intel is bad for Nvidia," at least not entirely.
Most likely, what we're seeing today is a confluence of three factors pushing down the value of Nvidia stock: first, the good news for Intel; second, a generally red stock market that's hitting shares of all stripes this morning; and third, the fact that Nvidia, with a P/E ratio of 74, just plain looks a lot riskier than Intel, which costs only 10 times earnings.
On a day when investors seem to be fleeing risk, it only makes sense that Nvidia stock would get hit harder than Intel stock.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Intel and Nvidia. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.
