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Nvidia, Nvidia, Nvidia.
The $3 trillion tech darling has seduced investors, and its stock has risen about 750% since the beginning of 2023.
But the past few days suggest that the spell the company cast over Wall Street has broken as a sudden wave of volatility briefly sent shares of the company skidding lower.
Nvidia's stock bounced back Tuesday, yet investors have been reminded of a potentially bubble-bursting truth: You can fly too close to the sun.
What's happening: Nvidia has had a whiplash-inducing few months.
The chipmaker added a trillion dollars to its market cap, growing to $3 trillion in just 30 days from April 2024. For context, it took Warren Buffett about 60 years to build Berkshire Hathaway into a nearly trillion dollar company.
On June 18, Nvidia's market value soared to $3.34 trillion, surpassing Microsoft's to become the world's most valuable company, and the stock seemed to be speeding up a one-way road to the top.
Why it matters: Nvidia is solely responsible for about 35% of the S&P 500's total gains this year, according to analysts at Deutsche Bank. That makes it one of the most influential companies ever listed on the S&P 500.
That's why Nvidia's plunge last week and on Monday was so jarring to investors. The stock shed a whopping $430 billion in value over the course of just three days.
"First it was the Magnificent Seven. Then it was the Fab Four. Now, a single stock is driving most of the gains in the S&P 500," said Jim Smigiel, chief investor officer at SEI.
Nvidia has been like a habit investors have been unable to shake.
"One question I get a lot is 'why don't I just put all my money in Nvidia.' I cannot really argue with that question," wrote Louis Navellier of Navellier & Associates in a recent note to investors.
Then came the drop.
"What we see with Nvidia is typical volatility, which is expected when a stock rises as quickly as Nvidia's did," Jochen Stanzl, chief market analyst at trading platform CMC Markets, told CNN on Tuesday.
But typical volatility can have seismic repercussions when it comes to a stock as all-consuming as Nvidia.
Emerging from the cave: The stock was the second best performer in the entire S&P 500 Tuesday, gaining nearly 7%. That pushed its market cap back above the $3 trillion mark again.
Still, the damage may already be done.
"Nvidia's rich valuation is ludicrous — its market cap now exceeds that of the entire FTSE 100, yet its sales are less than 4% of that index," said Emily Bowersock Hill, CEO and founding partner of Bowersock Capital Partners, with reference to the 100 biggest stocks listed in London.
Analysts at The Carlyle Group say that while artificial intelligence is revolutionizing the world around us, the Nvidia stock bubble will eventually burst.
"The market seems quite adept at identifying transformational change but gets fixated on the hardware that facilitates it rather than the downstream value that hardware ultimately unlocks," wrote Jason Thomas, Carlyle's head of global research and investment strategy in a recent note.
Yes, but: Still, enthusiasm remains high.
"The fundamentals behind Nvidia's growth remain the same," Neil Roarty, analyst at investment platform Stocklytics wrote on Tuesday. "If you believe that the AI technology its chips are powering will completely recalibrate the global economy — and many do — then a $3 trillion market cap suddenly looks considerably more reasonable."
The stock is up another 2.3% in premarket trading Wednesday.
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