Nvidia loses $470 billion in value in one week. Should investors be worried?

The artificial intelligence (AI) industry isn’t quite as bright as it was earlier this summer. Investors have become increasingly wary of the technology’s ability to deliver real-world value — at least on a time frame that justifies the skyrocketing stock valuations investors have seen.

At the heart of this is the posterchild of technology, Nvidia (NVDA -4.08%). The chip maker’s shares have fallen about 15% since it reported second-quarter earnings on Aug. 28. That’s nearly half a trillion dollars — $470 billion — in market capitalization destroyed in one week. It’s an incredible amount. There are only 15 companies on the planet with a market capitalization that exceeds what the company lost in one week. That shows how big Nvidia is.

This kind of drop can make you nervous. It makes me nervous. Before we jump ship, though, let’s consider more context.

The market as a whole is shocking

Most companies in the AI ​​space are affected. It’s not just AI though; the whole market is down. There are a lot of factors at play. For starters, investors are looking to see more data — such as a new jobs report — to help indicate where the economy is headed. Related to this will be the Fed’s decision in the coming weeks on whether to cut rates and, critically, by how much. So Nvidia’s slide comes as the overall market is down; the company is not alone.

Another likely factor to consider is that many investors are simply profiting. Some were probably waiting to see if the company’s Q2 report would blow expectations out of the water again. While it beat expectations in many ways, it wasn’t enough to send the stock flying, and it didn’t indicate what could be just around the corner. These investors are choosing to take the incredible returns they’ve seen over the past few years, given that they don’t think the stock will go up any time soon.

Nvidia remains in an extremely strong position

Regardless of why Nvidia stock fell, it’s not that important in the long run. This is a distraction. Do you still believe in Nvidia’s long-term prospects? Yes.

In the medium term, there is enough reason to see further growth. It may not reach the levels it’s had in recent quarters, more than tripling revenue year-over-year, but high double-digit growth is nothing to sneeze at. Fears of revenue streams drying up, at least soon, are overblown. If you look at the giant tech companies that buy Nvidia chips like Meta and Alphabettheir latest earnings calls show a clear intention to not just continue, but expand AI infrastructure spending. The gravy train isn’t slowing down anytime soon.

GOOG data on capital expenditures (TTM) by YCharts.

Look at Alphabet’s massive capital spending growth over the past three years. Have you noticed the spike in growth over the past year?

Thinking longer term now, the value proposition for Nvidia remains. AI is likely to transform the economy, and Nvidia is firmly in the middle of that transformation. Of course, Nividia is surrounded on all sides by competitors vying for that spot, and the company will have to work diligently to stay ahead of the curve. But for my money, if there’s one company that can do it, it’s Nvidia. He has demonstrated incredible foresight and an ability to innovate and pivot when he sees new opportunities.

I think investors will likely see more concrete examples of AI’s impact on companies’ bottom lines in the coming year, and I think it will renew investor confidence in AI as a whole and in Nvidia as its champion.