The dramatic fall in Nvidia’s share price, days after it became the most profitable company in the world, is causing a stir in the financial world.
The US chip manufacturer, Nvidia, has experienced a staggering loss of over $550 billion (£433 billion) in value. This decline marks the largest three-day value drop for any company in history. To put this into perspective, the combined value of the UK’s top three most valuable companies—AstraZeneca, Shell, and HSBC—is slightly more than what Nvidia lost in just a few days.
Such a massive loss has led experts to question whether we are witnessing the bursting of an AI bubble. Historically, speculative bubbles have often seen prices surge without regard to the true value of an asset. The late 1990s dotcom bubble is a prime example, where investors flocked to anything with ‘dotcom’ attached, only for many of those companies to vanish.
The tech sector is known for its herd mentality, driven by the success of early investors in giants like Google, Amazon, and Apple. This has led to a frantic search for the next big thing, resulting in some spectacular busts, such as the case of Theranos. However, Nvidia’s situation is distinctly different. The company has a solid track record of revenue and earnings growth. For example, in its first fiscal quarter of 2025, Nvidia reported record revenues of $26 billion, up 18% from the previous quarter and a striking 262% compared to the same period the year before. Net income also saw a significant increase, up 21% on the quarter and 628% on the year.
Nvidia’s shares, despite their high cost, were split, giving shareholders ten new ones for each held and a cash dividend increase of 150%. The company has consistently met Wall Street’s earnings forecasts since 2022 and exceeded revenue predictions since before 2020. This performance, coupled with excitement around its AI ventures, explains why Nvidia’s share price had been soaring until recently.
Some investors likely decided to book profits, a sensible move given the economic climate. Nvidia’s drop is enormous in monetary terms but relatively small concerning the company’s overall size. Therefore, this appears to be a correction rather than a cataclysmic crash.
However, Nvidia’s enormous size means its fluctuations can have widespread effects. The company’s movements significantly impact the S&P 500 share index, which is a vital indicator of the US stock market’s health. Nvidia alone was responsible for about a third of the S&P 500’s rise in 2024. This concentration of influence among a few substantial tech firms raises concerns about the broader market and economic stability.
The fall in Nvidia’s share price serves as a reminder of the significant impact tech giants have on global markets. While Nvidia’s decline appears to be a market correction, it highlights the need for caution in the AI sector and the potential risks associated with highly valued tech stocks.
