It’s been a rough six weeks for Nvidia Corp shareholders. A historic dip that erased record market value from the company was followed by a four-day stretch of stomach-churning volatility. Now, though, signs are emerging the worst might be over.

The chipmaker’s shares have surged 17% in the past four sessions, adding nearly US$424 billion in market value to one of the biggest companies in the world. The rebound has propelled the broader market higher as well, with Nvidia accounting for roughly 22% of the S&P 500’s gain over that span, double the contribution of any other single stock. The gauge has since notched its best stretch since early July, a welcome reprieve to investors who on Aug 5 were hit by the worst one-day rout in almost two years.

“There was a lot of positive news for Nvidia out of the hyperscalers this earning season, but the carry trade impact was so massive it didn’t matter,” said Ivana Delevska, the founder and chief investment officer of Spear Invest. “Now that that technical pressure has abated, there’s been a return to the fundamental story, and that’s why we’re seeing this spike.” 

The rally in Nvidia took options traders who have been betting on more losses in the chipmaker off guard. The cost of protection against a 10% decline in the stock over the next 60 days is near the highest since May 2023 relative to contracts profiting from a 10% rally, data compiled by Bloomberg showed.

Of course, a 17% advance in a stock that rallied more than 1,000% in 15 months before quickly giving back a quarter of the gains isn’t going to allay all the worries that caused the most recent selloff. Investors remain on edge about the health of the American economy and the wisdom of tech companies plowing hundreds of billions into artificial intelligence over the next several years with little profit to show for it.

But for now, the sell-off has attracted legions of dip buyers. Hedge funds to retail investors are bullish on the long-term trajectory of artificial intelligence (AI) and may be positioning ahead of what’s expected to be a solid quarterly earnings report from Nvidia, due at the end of the month. Results from megacap technology companies so far show that some of Nvidia’s largest clients - Microsoft Corp, Amazon.com Inc, Alphabet Inc and Meta Platforms Inc - all said they plan to continue investing billions into AI infrastructure. 

The sell-off also brought down Nvidia’s valuation to a level that might look more enticing to investors. Shares currently trade at about 36 times forward earnings, down from about 44 times in June. Overall, the Nasdaq 100 Index trades at about 25 times future earnings. 

“Even if you expect competition going forward, the valuation doesn’t look expensive,” Delevska said, adding that her preferred valuation metric, which measures equity value over earnings, is near a seven-year floor. 

Other beaten-down semiconductor names are also seeing investor interest on Tuesday. Shares in Broadcom Inc climbed 5.1% and have contributed the most to the Nasdaq 100’s daily gains, save for Nvidia. Applied Materials Inc, Advanced Micro Devices Inc and Qualcomm Inc all traded higher on Tuesday. 

Still, Nvidia shares remain down about 14% from the June 18 record, the day it overtook Microsoft to briefly become the world’s most valuable company.  

  - Bloomberg