Is This the Reason Nvidia Lost 5% Today?
Key Points
After-hours gains from Nvidia reversed in trading on Thursday.
Chip stock investors rotated into software stocks.
Nvidia still looks well-positioned for long-term growth.
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Nvidia (NASDAQ: NVDA) delivered another dazzling earnings report, but something surprising happened after the market opened today.
The stock gained as much as 3% after hours on Wednesday, but then gave up those gains later in the after-hours session and turned negative once the market opened on Thursday. Shares closed down 5.5%, even as the AI chip superstar beat estimates on the top and bottom lines and offered strong guidance.
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Image source: Nvidia.
A rotation could be afoot
The pullback wasn't contained to just Nvidia. Semiconductor stocks fell broadly in sympathy with Nvidia as the VanEck Semiconductor ETF finished the day down 3.3%.
However, a related sector was climbing today as software stocks gained across the board, with the iShares Expanded Tech-Software Sector ETF (NYSEMKT: IGV) finishing the day up 2.2%, and that may be related to comments from Nvidia CEO Jensen Huang.
In reference to the software sell-off during an interview with CNBC, Huang said that he thought the market "got it wrong," and said that AI and software would work together as AI would use products made by software companies like ServiceNow and Microsoft.
With the valuation ratio of chip stocks to software stocks much higher than it normally is, it's understandable that investors might rotate from one sector to another.
What it means for Nvidia
It's unclear if this movement will continue beyond one day, but Nvidia investors have little to worry about. While the stock is expensive relative to the S&P 500, it's also delivering explosive growth on the top and bottom lines, and remains the dominant AI chipmaker.
The stock will be volatile at times, but Nvidia looks well-positioned to deliver value for investors despite today's surprising pullback.
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Jeremy Bowman has positions in Nvidia and VanEck ETF Trust-VanEck Semiconductor ETF. The Motley Fool has positions in and recommends Microsoft, Nvidia, and ServiceNow. The Motley Fool has a disclosure policy.
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