Chibuike Ogu
NEW YORK (Reuters) – Nvidia (NASDAQ:) shares rose nearly 7% on Tuesday, emerging from a three-session slump that wiped out about $430 billion of the artificial intelligence chip maker’s market value.
Nvidia shares closed at $126.09 after a decline that saw them lose about 13% from their June 18 closing price of $135.58. The drop followed a rally that accelerated following a 10-for-1 stock split that took effect June 10.
“Today’s bounce is a normal technical bounce after falling 15% in three days; you’re not going to go down every single day,” said Tom Hayes, chairman of Great Hill Capital in New York. “It’s a great company, a great CEO, and you have insiders selling three-quarters of a billion worth of shares just as retail investors were participating in the split,” Hayes added.
Nvidia’s stunning growth and position as a dominant supplier of chips to power artificial intelligence applications have made it a symbol of the tech boom in the U.S. stock market this year.
Shares of Nvidia, which briefly became the world’s most valuable company last week, have risen 154% this year and accounted for a nearly 30% annual return as of Monday’s close, according to S&P Dow Jones Indices. The index is up 14.6% this year.
The recent sell-off has helped ease some concerns about Nvidia’s valuation, which now stands at around $3.1 trillion from a high of $3.3 trillion earlier this month.
“This is a normal correction for a company that has been successful and well-publicized,” said Tom Plumb, CEO and portfolio manager of Plumb Funds, which has Nvidia among its largest holdings. “Until there is confirmation that actual business will justify the slowdown, I don’t think you’ve reached an all-time peak.”
Optimism for Nvidia was evident in the options market, although the recent drop in share prices appears to have made traders more cautious.
Over the past three sessions, Nvidia call options, typically used to bet on rising stock prices, outperformed put options by a 1.4-to-1 ratio over the past three sessions, according to Trade Alert. That’s compared to a 1.6-to-1 call/put ratio for the previous 10 sessions.
At the same time, short sellers of Nvidia, betting the stock will decline, made $4.97 billion in the last three sessions combined, according to data analytics firm Ortex Technologies.
Meanwhile, retail investors were likely buyers of stocks during the recent decline, said Mario Iachini, senior vice president of Vanda (NASDAQ:) Research, which tracks individual investor behavior.