It's rare for a $2 trillion stock to fall on no direct news, but that's exactly what happened to Nvidia (NASDAQ: NVDA) today.
Shares of the AI chip leader got swept up in a broader AI sell-off after one analyst noted that Super Micro Computer (NASDAQ: SMCI), another AI stock leader, failed to report preliminary revenue, casting doubt on its upcoming results.
That news caused Nvidia to fall 10%, while Supermicro lost 23.1% today.
Image source: Getty Images.
The AI momentum shifts
Up until this month, AI stocks had skyrocketed this year on blowout growth and excitement for the breakthrough technology. At one point, Nvidia stock had nearly doubled year to date, following another blockbuster earnings report in February, and its market cap topped $2 trillion.
However, as this week's sell-off indicates, much of those gains were primarily driven by sentiment and a fear of missing out (FOMO) on the AI boom.
When stocks have already made gains of several hundred percent like Nvidia and Supermicro have, it doesn't take much for those gains to unwind, and that seems to be what's happening here.
A negative piece of news causes a little bit of selling, which leads to a flood as investors race to lock in profits before a potential bubble burst.
Is Nvidia stock in trouble?
The observation that drove the sell-off could easily be a nonevent, as a Wells Fargo analyst noted that Supermicro did not give its customary preliminary revenue report, possibly implying that its quarterly results were weaker than expected.
That's entirely speculation, however, Investors should also be aware that an event like that wouldn't normally cause a stock to plunge 23% like Supermicro did, but it has been highly volatile and propped up in part by momentum and sentiment.
As far as Nvidia is concerned, the GPU maker is a close partner of Supermicro, but Nvidia is much larger, meaning it's not particularly sensitive to Supermicro's results.
Still, sentiment in the AI sector tends to move these stocks in unison, and Nvidia has also benefited from enthusiasm and high expectations for AI, so it's not surprising to see the stock falling in line with Supermicro.
It's too soon to know if today's sell-off is meaningful. Keep an eye on Supermicro's Q3 earnings report, which is due out after hours on April 30, as that will confirm or reverse today's sell-off. Expect Nvidia to move in tandem with Super Micro Computer after that news comes out.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in Wells Fargo. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
