NTAL

Nvidia (NASDAQ:NVDA) stock has dropped sharply since early October, when it jumped to a record high. It has now dropped by 23% from its peak and lost crucial support levels, with investors focusing on the upcoming earnings report.

Nvidia Stock Has Slumped as AI Jitters Remain

NVDA stock has been in a strong sell-off in the past months as investors have remained concerned about the artificial intelligence (AI) industry. 

The decline has coincided with the ongoing sell-off of other AI companies, including those it has invested in. For example, Marvell Technology (NASDAQ:MRVL) and Lumentum (NASDAQ:LITE)  have all plunged by 57% and 52% from their all-time highs, respectively. The sell-off has intensified after the companies announced a plan to merge. 

Neoclouds that Nvidia has backed, like CoreWeave, Nebius, and IREN, have all dropped in the past few months. Even its privately funded neocloud companies are struggling, with Firmus pulling its IPO. 

These developments are happening as investors start worrying about the AI industry, with some notable figures warning that it is in a bubble. Ken Griffin and Ray Dalio have warned that the bubble may pop as interest rates remain elevated. 

Nvidia’s weakness intensified last week after the midterm elections, in which Democrats won the Senate and the House. As a result, there is a risk of moratoriums in the data center industry, especially in Texas, where the Governor-elect made it a key part of her policy. 

Nvidia Earnings Are Coming Up

On the positive side, Nvidia’s business is showing no signs of slowing down. Its revenue jumped to $104 billion in the second quarter, and management expects that its annual figure will jump by 70% next year. Just recently, SpaceX (NASDAQ:SPCX) raised $40 billion to buy Nvidia chips.

Benzinga data shows that analysts expect its results to show that revenue growth accelerated in the third quarter. The average estimate among analysts is that revenue jumped to $108.9 billion, up by 91% from a year earlier. Nvidia tends to do better than estimates, meaning that the revenue may come in at over $114 billion.

At the same time, the company is highly undervalued, with the forward price-to-earnings ratio being 20, much lower than the five-year average of 41. This is one of the reasons why the company announced a $150 billion share buyback plan.

Nvidia Stock Has Dropped Below Key Support Levels

The daily chart shows that the NVDA stock has been under pressure in the past month. It recently dropped below the important support level of $200. It has also fallen below the crucial support level of $190, its lowest level in June and July. 

Nvidia has also fallen below the 50-day and 200-day Exponential Moving Averages (EMA), a sign that bears have prevailed. Therefore, the stock may remain under pressure, possibly to the 50% retracement level of $165, and then rebound.

Image: Shutterstock