Nvidia Is Down 26% From Its All-Time High -- Here's How Far It Can Fall, Based on Historic Precedent

Core Viewpoint - The stock market has experienced significant growth, driven largely by the rise of artificial intelligence (AI), with Nvidia being a primary beneficiary of this trend [2][4]. Company Analysis - Nvidia has seen its stock value increase by over $3 trillion in market value within two years, although it has recently declined by 26% from its peak [4][5]. - The company has established itself as a leader in AI hardware, with its GPUs being essential for high-compute data centers, and has invested heavily in innovation [6][7]. - Nvidia's CUDA platform enhances customer loyalty by providing developers with tools to optimize their use of Nvidia GPUs [9]. - The demand for Nvidia's AI-GPUs has outstripped supply, leading to increased pricing power and gross margins [8]. Market Context - Historical trends suggest that new technologies often experience a bubble-bursting event, and AI may not be an exception [11][12]. - Previous technology bubbles have seen leading companies lose 80% to 90% of their value, indicating potential risks for Nvidia if a similar pattern occurs [13]. - Nvidia's diversified business model, including segments in PC gaming and virtualization software, may provide a higher floor for its stock value compared to less diversified peers [14]. Valuation Insights - Nvidia's price-to-sales (P/S) ratio peaked at 42.39, while other major tech companies have P/S ratios around 6.3 to 11.2, suggesting Nvidia could see a significant decline in value to align with its peers [16][17]. - The company’s pricing power may be threatened by increased competition and production ramp-up from rivals, which could impact its gross margins [18].