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Investors tend to take his word for it. Since he co-founded his group in 1993 and went public in 1999, NVIDIA has gone from being a maker of his chips specializing in the niche field of video games to the world’s third-largest chip manufacturer with a market value of more than 20 million yen. It has grown into a high-tech giant. 2.2 trillion dollars.
In fact, Leverage Shares’ recently launched ETF, which aims to deliver returns based on long Nvidia positions with 3x leverage, topped $100 million in assets this week.
Nvidia’s rapid growth creates big short-term bets
Nvidia’s stock’s parabolic surge began when the group surprised Wall Street with its revenue forecast, which beat analysts’ expectations by 75%.
However, cracks are beginning to appear on its exterior.
NVIDIA stock is the third most shorted stock on the market, with about $18.3 billion bet on it, according to recent data from S3 Partners.
This is comparable to Microsoft’s total short interest of approximately $20.17 billion. (MSFT) $18.72 billion for Apple (AAPL) .Nvidia’s short interest exceeds Tesla’s (TSLA) the amount is pegged at $17.01 billion, even though electric vehicle stocks have fallen more than 30% so far this year.
Short sellers bet on companies by borrowing and selling shares. When a stock’s price falls, the short seller buys it back at a lower price, returns the borrowed stock (while paying a fee), and pockets the difference.
Related: NVIDIA’s earnings are severely squeezed, stock prices soar. When is the time to buy AMD?
Of course, this tactic hasn’t proven profitable, and short sellers have shaved off nearly $7 billion in mark-to-market losses as of last month, but they’re still betting on Nvidia’s decline. It is increasing further.
Nvidia’s volatility is the highest among the Magnificent 7
The new short interest could explain the second of the stock’s most troubling characteristics: its spike in volatility.
Traders often derive a number known as implied volatility from the options market to measure the likelihood that a particular stock will move significantly over the next month.
NVIDIA’s implied volatility is 0.6392, more than double its level at the beginning of the year, according to AlphaQuery data. The company derives this number from at-the-money call option pricing, where the stock price and option strike price are the same.
Compare this to the modest 7.75% gain in CBOE Group’s VIX index, the market’s go-to volatility indicator that measures the expected 30-day volatility of a wide range of options on the S&P 500, and the potential for big swings in stock prices. Something more becomes clear.
Nvidia’s implied volatility level is also three times that of Microsoft and Apple, and more than 34% higher than the last peg placed on Tesla.
Related: Analyst reveals new price target for Tesla, magnitude 7 risk if stock price weakness continues
The most volatile stock in the market, at least in terms of options expectations, is Bitcoin-focused MicroStrategy. (MSTR) the world’s largest digital currency has soared more than 152% this year alone, in a recent string of records.
Also consider that more than $100 billion in Nvidia stock traded last Friday, with the stock closing at an all-time high of $972.32. The volume was second only to the $150 billion Tesla shares traded before being added to the S&P 500 in 2021.
This could add an important new dimension to investors’ focus on Nvidia’s upcoming GPU technology conference, scheduled to begin March 18 in San Jose, California. This conference could establish the core of next year’s AI ambitions.
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But Trading.biz analyst Corey Mitchell says it’s too early to tell whether NVIDIA’s recent price moves and increased volatility are indicative of a more worrying trend.
“If the decline is less than 12% in 2023 and 2024, prices have increased. Any decline beyond that indicates that trading is volatile and the decline is large,” he said. “Unstable trading means little progress beyond recent highs of $974.”
Nvidia stock fell 3.4% to $887.88 in early trading Wednesday. The stock hit an all-time high of $974 earlier this month and is up more than 84% since the beginning of the year.
Related: Veteran fund manager picks stocks to watch in 2024
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