Should investors be concerned by Nvidia’s price slide?
By Billy Leung, Investment Strategist at Global X ETFs
Did the United States Department of Justice (DOJ) cause the sell-off? No, not really. The headline came after market close when the stock had already fallen 9% intraday. The shares started off weak, with a ~2% dip likely driven by macro factors such as positioning ahead of payroll data on 6 September, US election concerns, and positioning for the interest rate cut cycle. While the DOJ subpoena may have been leaked, the >2sigma move does not seem to be fully attributable to this.
Is the DOJ Subpoena even new? No. The DOJ investigation began back in June 2023, so a portion of this risk should already be priced in. Yesterday’s after-hours headline added another 2% decline, suggesting there’s still concern but somewhat priced.
Does DOJ have a case? Yes. The investigation is centred on Nvidia’s market dominance and potential anti-competitive behaviour, such as exclusivity deals and barriers to switching. There have also been similar cases among Chinese companies as well which we can refer to later.
What could happen? If the DOJ proceeds, outcomes could range from minor fines to divestments, like RunAI. The worst-case scenario could affect Nvidia’s Artificial Intelligence (AI) hardware and software dominance.
Overall View: While the DOJ risk is still present, much of the base case scenarios appears to be priced in (big negative and big positive are the tail risks). More importantly, as we have been discussing, tactically speaking, shares of Nvidia could be volatile over the next two quarters as markets assess near-term margin pressure from ramping of new chips (H200) and awaiting certainty of Blackwell architecture product delay (for instance, confirmation from the CEO on January quarter revenues).
Long-Term? Nothing has changed. Nvidia remains a leader in GPUs, with a strong position in the AI space. The shift from hardware to full-stack software will drive more recurring revenue, higher margins, and potentially a re-rating. At 0.5x PEG and over 1% FCF yield, Nvidia’s structural story is still intact.
