Why Nvidia Stock Was Pulling Back Today

Nvidia‘s (NASDAQ: NVDA) roller-coaster week continued on Thursday with shares falling amid a broad sell-off in tech stocks. The plunge came in response to weak economic data this morning and the Federal Reserve’s decision not to lower interest rates yesterday.

Additionally, close collaborator Arm Holdings fell sharply after reporting earnings last night.

As of 1:28 p.m. ET, Nvidia stock was down 7%, following a 13% surge on Wednesday and another 7% slide on Tuesday. At the same time, Arm stock was down 16.9%.

Image source: Getty Images.

Nvidia gets tripped up again

Nvidia and its chip stock peers had tumbled over much of July in what seemed to be a rotation out of large-cap tech stocks that have surged this year and into underperforming small-caps.

Investors got a respite from that sell-off yesterday as Nvidia surged in response to strong results from AMD, but selling returned in force today.

There was no company-specific news out on Nvidia, but a disappointing manufacturing survey from the ISM showed the weakest reading since November and initial claims rose to a one-year high, a sign that the job market is continuing to slow.

Those numbers, combined with the Fed’s decision to maintain benchmark interest rates yesterday, have some fearing that the company could be weakening rapidly. A recession is still a risk and a downturn could be catastrophic for the chip sector, an already volatile industry, especially for high-flying players like Nvidia.

Additionally, Arm stock sold off despite the company beating estimates, which could be adding fuel to the argument that AI stocks are overvalued.

Will Nvidia stock keep falling?

Nvidia stock did begin the day in positive territory so shifting investor sentiment due to weak data seems to be the main reason for today’s decline.

The stock’s volatility could continue tomorrow, when the July employment report comes out, and markets seem likely to swing one way or another depending on the numbers. Don’t be surprised to see Nvidia shares move several percentage points again on Friday.

The AI chip leader will have a chance to redeem itself at the end of the month when it reports second-quarter earnings. The stock could continue to fall ahead of the report, but most of the recent slide seems related to concerns about valuation and a broader rotation into small-caps to prepare for a lower interest rate environment.

Based on recent commentary from big tech companies and results from the likes of AMD and Arm, demand for AI hardware remains exceptionally strong. Nonetheless, investor sentiment and economic data are likely to determine Nvidia’s price movements until its second-quarter results are in.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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