Why Nvidia stock slumped on Wednesday

Nvidia promises investors the world. Literally.

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Metaverse picture and word.

Image source: Getty Images

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

"Buy the rumor, sell the news." That appears to be investors' motto today, as shares of Nvidia (NASDAQ: NVDA) suffer through their second day of declines since CEO Jensen Huang's keynote presentation at the virtual GPU Technology Conference yesterday.

As of 11:30 a.m. EST, shares of the artificial intelligence and graphics semiconductors specialist had slumped 2.2% -- but that's not to say that the news was bad.

So what

As investor attention turns to Meta Platforms' (NASDAQ: FB) promise to create the first metaverse, Huang gave a presentation that had one analyst exclaiming, "Nvidia is so, so far ahead of any chip company in virtual world dynamic it's not even close," reported Investors.com yesterday.  

Walking investors through the future of AI and virtual reality, Huang seemed to promise investors an omniverse to trump Mark Zuckerberg's metaverse. Therein, omniverse avatars will employ artificial intelligence, artificial vision, and speech recognition to serve as virtual assistants. A new Nvidia Omniverse Replicator will create data to train neural networks that can operate autonomous vehicles and humanoid robots.

In the culmination of his vision, Huang even promised to build "a digital twin of Earth itself," reports VentureBeat.com, a virtual world online bearing the modest moniker "Earth 2."  

Now what

After all of that, I suspect there are really only two questions investors can respond with. First: "Where do I sign up?" And second: "But hold on a second -- how much does this stock cost?"

And here's the thing: At the risk of being a buzzkill, though -- or worse, "selling the news" -- I just have to point out here that as astounding as Nvidia's plans for the Omniverse sound, there's a price at which that future begins to cost too much.

Suffice it to say that with today's decline in stock price, investors may be waking up to the possibility that 105 times earnings, and 112 times free cash flow, is too high a price to pay for Nvidia stock. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Rich Smith has no position in any of the stocks mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Meta Platforms, Inc. The Motley Fool Australia has recommended Meta Platforms, Inc. and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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