Why Nvidia's stock price has dropped

When artificial intelligence chipmaker Nvidia became the world's most valuable company last week -- surpassing household names like Apple and Microsoft -- the moment appeared to be a declaration of victory for the AI boom on Wall Street.

Over the next three trading days, however, Nvidia shares plummeted 13%. The company lost more than $500 billion in value and plopped down to third place among the largest firms.

Rather than a rebuke of AI or Nvidia, the extraordinary losses amounted to a routine selloff on a massive scale as traders sought to cash in on some of the gains made by the chipmaker during its meteoric rise, market analysts told ABC News.

Analysts differed on whether the recent slide offers a worthwhile opportunity for investors to buy the stock at a favorable price.

"It's normal to see stocks take a breath," Steve Sosnick, chief strategist at trading firm Interactive Broker, told ABC News. "What's abnormal is that Nvidia went so far and so long without taking a breath."

It's difficult to overstate the success that Nvidia enjoyed prior to its recent decline. The California-based company, which sells the majority of computer chips behind new AI products like ChatGPT, saw its stock soar nearly 700% in two years.

Even when accounting for the recent decline, shares of Nvidia have climbed nearly 150% since the outset of 2024.

After a prolonged ascent, stocks often fall victim to a phenomenon called profit-taking, when traders sell off some of their shares to lock in the returns. In this case, analysts said, that routine pullback was larger than one might expect because the preceding rise had been unusually steep.

"It's not normal to have a stock go up this dramatically," Sosnick said. "As a result, when it's due for a little bout of profit taking, that will be abnormal, too."

Ivan Feinseth, a market analyst at Tigress Financial, agreed. "The stock has had a huge run," Feinseth told ABC News. "Some people who are more short-term oriented feel it's time to take a profit."

While citing a trend tied to market behavior rather than business performance, the analysts dismissed the notion of newfound weakness in the AI sector or Nvidia.

In an earnings release last month, the company reported $26 billion in revenue, which marked a staggering increase of 262% over the previous year. Profits jumped more than 600% over that same period.

In March, the company announced its latest and most powerful chip, Blackwell. Amazon, Google, Meta, Microsoft and OpenAI are among a who's who of major tech firms set to adopt the new technology, Nvidia said in a statement.

"It's Nvidia's world -- everyone else is paying," Dan Ives, a managing director of equity research at investment firm Wedbush, told ABC News.

Despite their agreement on the cause of the stock decline, analysts differed in their assessment of whether the current moment offers a chance for investors to jump into the stock.

Feinseth encouraged investors to buy into the stock, since he expects the dip to draw renewed interest in the company and send the price higher. "This is a stock that everybody wants to own and everybody is going to react to buying any selloff," he said.

Early trading on Tuesday appeared to confirm that view. By noon, the stock had risen almost 5%, recovering much of what it had lost in recent days.

"This was just a small bump," Ives said.

Sosnick, by contrast, cautioned against buying Nvidia shares unless the price falls further. Otherwise, he added, the relatively modest potential gains do not outweigh the risk of continued volatility.

"The stock is not super expensive but nor is it particularly cheap," Sosnick said.