Why Nvidia Stock is Falling: Economic Data and Rising Competition

Shares of Nvidia (NVDA) experienced a decline on Thursday, dropping by as much as 5.1%. At 12:52 p.m. ET, the stock was still down approximately 4.3%.

Two main factors contributed to this downturn: recent economic data regarding inflation and news about a potential competitor in the artificial intelligence (AI) sector.

Concerns Over Inflation

The latest report on inflation negatively affected investor sentiment towards Nvidia. According to the U.S. Department of Commerce, consumer prices edged higher in September. The personal consumption expenditures (PCE) index, which is a key measure for the Federal Reserve, showed a year-over-year increase of 2.1%, with a seasonally adjusted monthly rise of 0.2%. When volatile food and energy prices are excluded, the inflation rate climbs to 2.7%.

While these inflation metrics may appear stable, they raise the probability of the Federal Reserve refraining from interest rate cuts in its upcoming meeting next week.

Incoming Competition from Softbank

Further rattling investors was a report from the Financial Times suggesting that Softbank (SFTB.Y) plans to leverage Arm Holdings (ARM) technology to develop a new network of data centers specifically designed for training and operating AI systems. Softbank holds a significant 90% stake in Arm, and this move could position it as a competitor to Nvidia, which currently dominates the GPU data center market. This strategy represents a noteworthy shift from Arm's established approach of predominantly licensing its technology.

Contextualizing the Situation

Despite the concerning news, it's essential to view these developments in context. The economy is gradually recovering, a process that may include ups and downs. Whether the Federal Reserve cuts interest rates next week will primarily influence market psychology rather than alter the economy's trajectory.

Moreover, Nvidia's technology is deeply woven into the fabric of the evolving AI landscape, and this connection is not expected to wane soon. Notably, Arm generates the majority of its revenue from major chipmakers, including Nvidia itself. This makes it unlikely that Arm would jeopardize such important collaborations. Additionally, considering Nvidia's valuation at around 33 times the expected earnings for next year, it remains attractive, especially given the potential that AI holds for the future.

While the current drop in Nvidia's stock is concerning for investors, understanding the broader economic context and Nvidia's ongoing role in technology can provide some reassurance.

Nvidia, Stock, Economy