Nvidia Under DOJ Scrutiny: Overvaluation Fears Add to Stock Decline
Is Nvidia Overvalued? | Credit: China News Service / Getty Images.
Key Takeaways
- Nvidia has denied reports that it received a subpoena from the Department of Justice.
- Nevertheless, the chipmaker’s stock price remained depressed on Wednesday.
- Some analysts are concerned that Nvidia could be overvalued.
Nvidia’s stock price continued to decline on Wednesday, Sept. 4, despite the company denying reports that it had been subpoenaed by the Department of Justice
After Bloomberg reported on Tuesday, Sept. 3, that the DoJ had escalated its antitrust investigation into the chipmaker, Nvidia shares plummeted in overnight trading and remained depressed throughout the next day.
With several industry peers also suffering market losses, the ongoing bearishness suggests there is more to Nvidia’s decline than the DoJ probe.
Nvidia Denies Reports of DoJ Probe Escalation
Responding to Bloomerg’s report, an Nvidia spokesperson spoke to CNBC, stating: “We have inquired with the U.S. Department of Justice and have not been subpoenaed.”
“Nonetheless, we are happy to answer any questions regulators may have about our business,” they added.
First reported in June, the DoJ probe into Nvidia is investigating whether the chipmaker is making it unnecessarily difficult for customers to switch to other suppliers. As part of the inquiry, officials are looking into Nvidia’s acquisition of RunAI–a startup that develops GPU optimization software.
Having initially sent questionnaires to technology companies to gather information, the use of legally binding subpoenas would represent a significant escalation of the DoJ investigation.
After the company refuted the claim, Nvidis’s share price stabilized on Wednesday but failed to recover its earlier losses.
NVDA Plummets
From $119.37 at the close of trading on Tuesday, NVDA fell to lows of $104.12 on Wednesday, ending the day at $108.
The mass selloff reflects a wave of profit-taking as investors seek to lock in triple-digit gains that have occurred since the beginning of the year. More broadly, concerns about the US economy have dragged down many major technology stocks this week.
Among the Big Tech giants that often serve as a barometer for the wider US tech sector, Apple, Alphabet, Amazon, Meta and Microsoft are all down since Friday.
AI Market Volatility
Recent volatility comes amid major transformations in the market. Responding to the AI boom that has fueled Nvidia’s massive growth in recent times, other companies have been forced to adapt.
Industry stalwarts including Cisco, Intel and Dell are all undergoing significant restructuring, creating a wave of layoffs as they look to cut costs and make the most of AI opportunities.
There are also signs that the hype-fueled AI optimism that has characterized at least the past two years could be coming to an end as shareholders start to demand results from the billions of dollars companies have plowed into AI.
Reflecting growing skepticism among investors, Elliott Management cautioned last month that Nvidia and other major technology stocks are in “bubble land” due to “overhyped” AI.
Having more than doubled its market valuation since the beginning of 2024, Nvidia could be highly susceptible to any signs that growth in the AI sector is slowing down.
Is Nvidia Stock Overvalued?
As a result of its massive stock market gains, Nvidia trades at a price-to-earnings (P/E) ratio–56.9 as of Sept. 3.
| Company | Price to Earnings Ratio |
|---|---|
| Nvidia | 56.90 |
| AMD | 72.47 |
| Intel | 47.91 |
Source: Macro Trends
A high P/E ratio indicates that investors are paying a premium for the company’s future earnings growth, and may suggest overvaluation if the earnings don’t grow as anticipated.
What’s more, a significant portion of Nvidia’s valuation is tied to its dominance in the AI hardware space. This means its stock price is heavily influenced by the current hype around AI, which may not be sustainable. If the AI market doesn’t grow as expected or if competition intensifies, Nvidia’s earnings could suffer, alongside other major tech companies.
