Nvidia's rapid rise hits 'bumps in the road'

After blowing past a $3 trillion market capitalization and briefly becoming the most valuable company in the world last month, Nvidia has lost and regained hundreds of billions of dollars in value in recent days. 

While the chipmaker’s volatility has sparked some concerns about the sustainability of the stock market’s artificial intelligence (AI) boom, experts say Nvidia's ups and downs are “bumps in the road” as it continues its meteoric rise.

“The godfather of AI, Jensen [Huang], and Nvidia are leading the AI revolution, and I view this recent sell-off as a blip on the radar,” Wedbush Securities analyst Dan Ives told The Hill, referring to the company's co-founder and CEO. 

Nvidia crossed the $3 trillion mark for the first time in early June, joining the elite club inhabited by only Microsoft and Apple. Less than two weeks later, the chipmaker briefly overtook Microsoft as the world’s most valuable company. 

The milestones reflect the rapid ascent of Nvidia, which first crossed $1 trillion just over a year ago. By February, the company had topped $2 trillion. Since the beginning of the year, its share price climb more than 150 percent. 

Nvidia’s success has largely been driven by its graphics processing units (GPUs), which have been central to powering the AI boom. The chipmaker's GPUs are in high demand as major tech companies race to develop and release their own AI models.

“They're the only game in town,” Ives said, adding, "Their GPUs, their chips are the new oil and gold for tech.” 

However, the chipmaker took a turn last week when its share price plunged 16 percent and caused the company to shed $550 billion in value — more than the entire market capitalization of Walmart or Visa. 

Nvidia’s stock partially rebounded in the following days, bringing its market capitalization back above $3 trillion. It is currently the third most valuable company in the world once again, behind Microsoft and Apple, with no other competitor close behind. 

The chipmaker’s high level of volatility is unusual for such a large company, said Jim Smigiel, chief investment officer at the financial services firm SEI. 

Nvidia’s volatility is much higher than its closest competitors and the market overall. It has a 20-day historical volatility of 44 percent, while Microsoft and Apple are around 14 percent and 23 percent. VIX, a measure of the market’s expected volatility, currently sits at 12.09. 

“To have a volatility measure which is roughly triple-plus, even quadruple the market, it's not unusual for a small cap stock,” Smigiel told The Hill. “To have that be the largest stock in the index and the largest company in the world, is highly, highly unusual.” 

The chipmaker’s recent movements have raised questions about the sustainability of its rapid rise, noted Stacy Rasgon, a senior analyst at Bernstein Research who focuses on the semiconductor industry. 

“The big question people have on this stock right now is just sustainability,” Rasgon said. “It's just the numbers have gotten so big, so quickly that you’ve got to wonder, can they continue?” 

While Rasgon acknowledged that it’s impossible to know the answer, he said he’s not worried about Nvidia over the next year or two and suggested its latest fluctuations don’t “mean much of anything.” 

“I don't think it means anything about the long-term prospects,” he said. “It had a massive run, and it's pulled back a little bit.” 

Ives similarly brushed off the recent swings in the share price as “bumps in the road” for the chipmaker. 

“We're going to see ebbs and flows in this parabolic move for Nvidia, as well as tech,” Ives said. “But I just view it as bumps in the road to a $4 trillion market cap for Nvidia as we look down 2025.” 

“I think this is going to be, in the spirit of the Summer Olympics, a race between Nvidia, Microsoft and Apple, but ultimately we see three $4 trillion market caps over the next year with Nvidia likely the first one to pass that threshold,” he added. 

As of Thursday, Microsoft’s market capitalization stands at $3.42 trillion, closely followed by Apple at $3.40 trillion, while Nvidia sits further behind at $3.16 trillion.