Finally, NVIDIA has crashed!

After rising for six consecutive trading days with a cumulative increase of over 19%, NVIDIA's stock price finally plummeted, marking the largest single-day decline in nine months.

In the overnight U.S. stock market, NVIDIA fell by 5.6%, achieving its largest drop since May 31, 2023, with a market value reduction of approximately $130 billion in a single day, making it one of the largest single-day market value evaporations in U.S. stock market history.

At present, NVIDIA's market value is around $2.2 trillion, making it the third-largest company among the S&P 500 index components, following only Microsoft and Apple.

Of particular note is that the chip sector led by NVIDIA almost entirely collapsed overnight.

Marvell Tech fell by over 11%, AMD dropped nearly 10%, Broadcom fell by 7%, ARM by 6.6%, ASML ADR by over 5%, followed by declines in AMD, MediaTek, Intel, Qualcomm, TSMC, AMD, Micron Tech. Semiconductor sector ETFs and the Philadelphia Semiconductor Index both dropped by over 4%.

The sudden drop in NVIDIA's stock price was not entirely unexpected.

Time to Take Profits?

Earlier in the trading session, NVIDIA's stock price rose by 5.1%, pushing a momentum indicator to its highest level since November 2021, indicating that the stock's correction time has matured. On Friday, the relative strength index climbed above 85, the highest level since November 2021, before falling back to around 70.

In a recent report, Mizuho Securities analyst Jordan Klein mentioned that with NVIDIA's stock price hitting new records almost daily, it feels a bit "unhealthy," reminiscent of the crazy tech market sentiment in 1999 and 2000.

NVIDIA is preparing for its annual GTC conference on March 18-21, which could lead to a market "surge." Klein is concerned that some investors may take profits after the GTC conference, causing a pullback in NVIDIA's stock price.

Klein pointed out that investors seem to be caught in a "pure chasing mode," leading to continuous price hikes in semiconductor stocks, creating a "self-reinforcing" trend. Investors should remember that AI chip stocks like NVIDIA "cannot rise every day," just as the recent market activity has appeared unnatural.

Warning from "Wood Sister": NVIDIA Could Be the Next Cisco

In a letter to shareholders on Thursday local time, Cathie Wood, CEO and CIO of Ark Invest, sounded the alarm for NVIDIA, warning that its astonishing growth may slow down.

She pointed out that unlike Cisco in the internet era, NVIDIA is currently facing increasingly fierce competition.

In the long run, unlike Cisco's historical trajectory, NVIDIA's competitive environment may become more challenging. This is not only because AMD is gradually gaining market success, but more importantly, NVIDIA's major customers, including cloud service providers and companies like Tesla, are actively designing their own AI chips.

Wood recalled that in the three and a half years leading up to March 1994, Cisco's stock price soared 31 times, but due to concerns about economic recession and the launch of competitors' products leading to customer order cuts, Cisco's stock price fell by 51% in the following four months.

By March 2000, at the peak of the internet bubble, Cisco's stock price rebounded 71 times, but in the years following the burst of the bubble, it plummeted by about 90%, and has never returned to the peak of the internet bubble era.

Today, NVIDIA is that company.

Wood emphasized that in the nine years since February 2015, NVIDIA's stock price has risen by 117 times. In October 2018, the crypto winter hit the chip market, causing NVIDIA's stock price to fall by 56% in three months.

Just as Cisco's switches and routers sparked the internet revolution back then, NVIDIA is the key company driving the development of the AI revolution, so its stock price will also experience significant fluctuations and volatility, just like Cisco did in the stock market.

Goldman Sachs also issued a similar warning:

It should be noted that comparing NVIDIA's stock price trend from 2020 to the present with Cisco's trend from 1996 to 2002, and magnifying it to the performance in 2000, the two have astonishing similarities. Back then, Cisco was seen as the darling of the network era, with high hopes placed on the internet. It was widely believed that the entire internet would rely on Cisco's routers, which had a high gross margin of 50%. But it didn't turn out that way in the end.

Wood also predicts that NVIDIA's growth will slow down this quarter, chip delivery times have shortened from 11 months to 3 months, indicating that supply is catching up with demand. In addition, as more companies (such as Tesla) start designing their own AI chips, customers are beginning to cut expenses, posing more challenges for NVIDIA. In recent months, Wood has become increasingly cautious about NVIDIA. As early as February, she revealed that she was reducing the stock exposure of the Ark Fund because "expectations may exceed reality".

Market "Fear of Heights" Grows

In fact, NVIDIA's stock price has surged by nearly 90% this year, with a market value exceeding 2 trillion US dollars, surpassing Amazon and Google's parent company Alphabet, and trailing only Apple by 13%. A decade ago, NVIDIA's market value was only 1/47 of Apple's.

In addition, supported by the "Seven Sisters" of technology, the Nasdaq has risen by over 40% in the past year, and the S&P 500 index has also risen by over 30%.

As the stock market continues to break records, investors are showing a "fear of heights" sentiment, with more voices attempting to cool down the overheated market.

Earlier, BTIG's Chief Market Technician Jonathan Krinsky warned:

Some form of reshuffling may be imminent.

A Citigroup report also pointed out that the investment market is showing signs of excessive optimism and a "one-sided" trend, increasing the risk of a market correction.

At the same time, the market has already priced in expectations of a Fed rate cut, but recent inflation data has been too hot. Friday's non-farm payroll data showed mixed results, and any unexpected moves by the Fed could potentially lead to a "bloodbath" in tech stocks.