A broad US equity rally sparked by Nvidia’s blockbuster earnings and guidance unravelled on Thursday, with the chipmaker reversing steep early gains and pulling major indices lower.
The shift left investors reassessing stretched AI valuations and the likelihood of another rate cut from the Federal Reserve in December.
The Dow Jones Industrial Average last traded 332 points lower, a drop of 0.7%. The S&P 500 fell 1%, while the Nasdaq Composite declined 1.3%.
Those losses stood in stark contrast to early-session optimism, when the Dow had jumped as much as 717 points and the S&P 500 and Nasdaq climbed 1.9% and 2.6% at their intraday highs.
Nvidia surrendered gains of as much as 5% after releasing quarterly results that exceeded Wall Street expectations on both earnings and revenue. The company also issued stronger-than-expected fourth-quarter guidance.
CEO Jensen Huang said demand for the firm’s current-generation Blackwell chips was “off the charts,” and rejected suggestions that the AI boom reflected a bubble.
Despite the upbeat commentary, Nvidia stock turned negative and was last seen down around 1%, weighing on the broader market.
Investors grew increasingly uneasy about lofty AI-related valuations, particularly if the Fed refrains from additional rate cuts this year.
The weakness continued a broader cooling in AI-linked stocks. Through Wednesday, the S&P 500 was down about 3% for the month, while the Nasdaq had fallen nearly 5%. Nvidia itself had declined 7% for November ahead of Thursday’s session.
Analyst remains cautious on Nvidia stock
Deutsche Bank stood out as the only major firm to maintain a neutral stance on Nvidia following the earnings release, as per a CNBC report.
Analyst Ross Seymore attributed the decision largely to valuation.
Seymore wrote that the firm remained bullish on Nvidia’s long-term prospects but argued that extraordinary expectations over the next two years were already reflected in the stock price.
The analyst was “very impressed with NVDA’s continued leadership in AI compute, networking, software and systems capabilities,” adding that Nvidia’s lead over competitors appeared more likely to widen than narrow.
However, he noted the shares appeared “fairly valued,” citing a $215 price target implying roughly a 23x P/E multiple on 2027 calendar year estimates that already assume about 85% revenue growth over two years.
China weakness also hurts the Nvidia stock
Nvidia’s China business remained a pressure point in the third quarter as US trade restrictions continued to reshape the competitive landscape.
The company reportedly recorded just $50 million in sales of its H20 chips — versions of its Hopper GPUs configured for China to meet tightening export controls — for the period ending October 26.
CFO Colette Kress said, “sizable purchase orders never materialised in the quarter due to geopolitical issues and the increasingly competitive market in China.”
Nvidia reported $2.8 billion in total China revenue, representing 5% of quarterly sales, well below the $8.4 billion projected by analysts.
By comparison, revenue from the US reached $39.2 billion, while Taiwan generated $13.8 billion.
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