What Happened?

Shares of leading designer of graphics chips Nvidia (NASDAQ:NVDA) fell 7.9% in the afternoon session after market volatility continued, with the stock seemingly affected by the broader downturn as the Nasdaq declined 1.3% in another negative session. Tepid economic manufacturing and construction data released Monday sparked another wall of worry about the US economy. 

Additionally, investors may be concerned about the company's business in China, which has been tangled up in the trade war drama. Notably, the Wall Street Journal reported that some Chinese buyers are finding ways around export restrictions to get their hands on Nvidia chips. That kind of news could get regulators thinking about tighter measures, which could further limit Nvidia's business in China.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Nvidia? Access our full analysis report here, it’s free.

What The Market Is Telling Us

Nvidia’s shares are very volatile and have had 27 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 7 months ago when the stock dropped 14.8% on the news that markets continued to decline, although they have recovered a bit since the open (Nasdaq down 3.6%, S&P 500 down 3%). Yields also retreated as worries about a US recession grew. 

The declines followed volatility on Friday, August 2, when the July Non-Farm Payrolls data revealed weaker job growth as the unemployment rate rose. Markets might also be concerned that the Fed is behind in cutting rates, with the Federal Open Market Committee leaving rates steady at 5.25%-5.50% during the July 2024 meeting. 

For example, respected economist and University of Pennsylvania professor Jeremy Siegel took an aggressive stance, calling on the Fed to make an emergency 75 basis-point cut in the federal funds rate after Friday’s disappointing jobs report. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. However, the economy matters as well. Recessions can mean broad-based declines in demand for everything from consumer goods to enterprise software. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

Nvidia is down 15.5% since the beginning of the year, and at $116.93 per share, it is trading 21.7% below its 52-week high of $149.43 from January 2025. Investors who bought $1,000 worth of Nvidia’s shares 5 years ago would now be looking at an investment worth $17,588.

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