Nvidia's Rally Cools Off… For Now

Nvidia's Stock Enters Correction

Nvidia's stock has fallen for three consecutive days, marking a sharp reversal after a scorching rally. Over the past year, the chipmaker's share price skyrocketed nearly 200%, peaking at $140. However, investors seem to be taking profits, leading to a 12.9% drop in the last three days and a staggering $400 billion wiped off the company's market value. 

This decline pushes Nvidia's stock into correction territory, a term used for a price drop of at least 10% from a recent high. The sharp selloff suggests the market may be losing confidence in the stock's rapid ascent, a pattern often seen in overheated rallies.

Just last week, Nvidia briefly held the title of the world's most valuable company, surpassing tech giants like Apple and Microsoft. Its market cap even eclipsed the entire stock markets of France and the UK!  Additionally, the AI chipmaker was once the top holding in the world's largest ETF (SPY) before being dethroned by Microsoft.

Is Nvidia a Growth Gem or Overpriced Enigma?

Investors are on a constant hunt for companies with a sweet spot: promising growth potential coupled with attractive valuations. A popular tool for uncovering these gems is the PEG ratio. This metric takes the price-to-earnings (P/E) ratio and divides it by the company's expected earnings per share (EPS) growth rate.

Here's the key: a lower PEG ratio suggests you're getting more value for your investment because you're paying less for each dollar of future earnings growth.

With a PEG ratio of 1.4, Nvidia sits comfortably among the lowest in an elite group ("Magnificent 7").  Additionally, it boasts the highest anticipated EPS growth rate at 32%. On paper, this makes Nvidia a potentially undervalued stock.

But hold on a minute.  Despite having the highest P/E ratio in the entire S&P 500, Nvidia's revenue growth is expected to slow down in the coming quarters.

The crux of the matter: Nvidia's hefty valuation rests heavily on its anticipated rapid earnings growth, particularly in the AI sector. While most analysts share this optimistic outlook, it still requires a significant leap of faith from investors.

Key Fed Data This Week Could Shake Rate Cut Expectations

With earnings season nearing its peak, the data spotlight shines brightly on the Federal Reserve. This data-driven central bank will be closely watching key releases in the coming week, as they could significantly impact the anticipated path of interest rates.

Markets currently project a high probability (around 64%) of a rate cut in September, potentially followed by another in December. However, this outlook hinges on upcoming economic reports.

The most critical report this week is Friday's Personal Consumption Expenditures (PCE) data. This inflation gauge is expected to show a modest 0.1% monthly increase in prices. If inflation deviates significantly from this expectation, the Fed's rate cut calculations could be thrown into question.

Note: Leverage Shares offers a variety of Exchange-Traded Products (ETP) to professional investors via LSE and European exchanges. For instance, NVD3 provides a daily-rebalanced 3X leveraged exposure to the upside of the stock’s performance while NV3S provides the same exposure to the downside.

About Leverage Shares

Leverage Shares is the largest European issuer of single stock ETPs by AUM & trading volume. It is the only provider of physically-backed leveraged ETPs on single stocks, ETFs and commodities.

The opinions expressed in this publication are those of the authors and are subject to change. They do not purport to reflect the opinions or views of Trackinsight or its members. Trackinsight does not guarantee the accuracy, completeness, or reliability of the information provided.