Nvidia shares warn investors ahead of key AI conference

Jensen Huang co-founded Nvidia in 1993, a year after receiving his master’s degree from Stanford. The company is now valued at $2.2 trillion.

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Investors have been inclined to believe him: Since he co-founded the group in 1993, taking it public in 1999, Nvidia has grown from a niche maker of videogame chips to the world’s third-largest tech company. which is more than the market value. $2.2 trillion.

In fact, an ETF recently launched by Leverage Shares, which aims to provide returns based on long positions in Nvidia at three times leverage, topped $100 million in assets this week.

Nvidia surge sparks big short bets

The parabolic rise in Nvidia shares began after the group stunned Wall Street with an earnings forecast that beat analysts’ forecasts by 75%.

But now it has started showing cracks in its exterior.

Shares of Nvidia are the third most shorted stock on the market, with about $18.3 billion bet against it, according to recent data from S3 Partners.

That compares to about $20.17 billion in short interest on Microsoft. (MSFT) and $18.72 billion on Apple (AAPL) . Nvidia’s short interest is even greater than Tesla’s. (TSLA) That’s estimated at $17.01 billion, though electric vehicle stocks are down more than 30 percent so far this year.

Short sellers bet against a company by borrowing and selling shares. If the stock price drops, short sellers will buy back the shares at a lower price, return the borrowed stock (paying a fee), and pocket the difference.

Related: Nvidia crushes earnings, stocks rise Time to buy AMD?

That tactic hasn’t proved profitable, of course, and short sellers had about $7 billion in mark-to-market losses as of last month, but they’re still betting on Nvidia’s downfall.

Nvidia’s volatility is the highest among its Magnificent 7 peers.

Renewed short interest may explain the stock’s other most troubling characteristic: its heightened volatility.

Traders often derive a figure from the options market, known as implied volatility, to estimate the probability that a particular stock will rise in the coming month.

Nvidia’s implied volatility, at 0.6392, is now more than double its level at the start of the year, according to AlphaQuery data. The firm derives these figures from the pricing of at-the-money call options, where the stock price and the option’s strike price are the same.

Compare that to just a 7.75% rise in the CBOE Group’s VIX index, a measure of market volatility, which measures 30-day volatility expectations in a broad range of S&P 500 options, and the likelihood of big swings in stocks and Also becomes clear.

Nvidia’s implied volatility levels are also three times higher than Microsoft and Apple, and 34% higher than the last peg placed on Tesla.

RELATED: Analyst reveals new Tesla price target, Mag 7 risk as shares fall

The market’s most volatile stock, at least in terms of option expectations, is a bitcoin-focused microstrategy. (M.S.T.R) which has surged more than 152% this year alone amid a recent run of records for the world’s largest digital currency.

Also, consider that more than $100 billion worth of Nvidia shares changed hands last Friday, when the stock closed at a high of $972.32. That volume was second only to the $150 billion in Tesla shares that traded ahead of the S&P 500’s rise in 2021.

That could add an important new dimension to investor attention at Nvidia’s upcoming GPU technology conference, which kicks off on March 18 in San Jose, California, which will focus on its AI ambitions for the coming year. .

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Corey Mitchell, an analyst at Trading.biz, says it’s too early to tell whether Nvidia’s recent price swings and increased volatility indicate a more worrisome trend.

“Pullbacks of less than 12 percent in 2023 and 2024 have resulted in higher price gains. Pullbacks of more than this have indicated choppy trading and large declines,” he said. “Choppy trading means little or no progress from the recent high of $974.”

Shares of Nvidia were down 3.4% in early trading Wednesday and were changing hands at $887.88. The stock hit a high of $974 earlier this month and is up more than 84 percent year-to-date.

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