Trillion-dollar market cap evaporates to uncover a "golden opportunity"? NVIDIA Corporation(NVDA.US) valuation dropped to pre-AI boom levels, with bullish investors quietly increasing their positions.

AI chip giant NVIDIA Corporation (NVDA.US) is currently experiencing the most severe valuation reshaping since the start of the artificial intelligence boom. Since reaching a historical high on May 14th, the stock has dropped by over 16%, with the market value evaporating by approximately $1 trillion in less than two months. This sell-off has compressed NVIDIA Corporation's expected P/E ratio to 18 times - the last time it reached such a low level was back in early 2019 when the AI boom had not yet taken off. The once darling of Wall Street is now cheaper than both the S&P 500 Index (with an expected P/E ratio of over 20 times) and the Nasdaq 100 Index (nearly 23 times). However, the valuation contraction is not due to deteriorating prospects. On the contrary, Wall Street analysts have been continually raising earnings expectations for NVIDIA Corporation in the coming quarters. The true meaning of this sell-off is that the focus of AI trades is shifting. From "the only choice" to "a source of funds": The dramatic change in AI investment logic From the end of 2022 to 2025, driven by the surge in GPU demand, NVIDIA Corporation's stock price skyrocketed by over 1100%. However, as of 2026, this momentum has abruptly stopped - with only a 5.6% increase for the year, much lower than the 9.6% increase in the S&P 500 Index and the 16% increase in the Nasdaq 100 Index. During the same period, the Philadelphia Semiconductor Index (SOX) surged by 74%, on track to achieve its best annual performance since 2003. The index is led by Micron Technology, Inc. (MU.US) - after a massive 239% surge in 2025, Micron has already risen by 229% in 2026, becoming the biggest beneficiary of the skyrocketing prices of AI storage chips. NVIDIA Corporation is currently ranked third from the bottom in the benchmark index of 30 semiconductor-related stocks. Eric Clark, Chief Investment Officer of Accuvest Global Advisors, summarized: "The stock ran very far and very fast for a period of time, making it a very crowded trade. Then the market wanted to touch other things, and NVIDIA Corporation became a source of funds for other trades." Flow of funds data confirms this assessment. The three storage chip giants - Micron, SanDisk (SNDK.US), and Western Digital Corporation (WDC.US) - collectively contributed nearly a quarter of the gains in the S&P 500 Index this year. The world's first actively managed ETF in the memory sector (DRAM) has continuously attracted inflows since its inception. Earnings expectations for storage chip manufacturers have been significantly raised in the past three months, from 34.3% to 48.5%. UBS Group AG estimates that economic profits in the AI infrastructure sector will jump from approximately $200 billion in 2023 to $1.4 trillion in 2027, a 600% increase - with storage stocks alone contributing half of the expected growth. Intensifying competition: Double pressure from self-developed chips and CPU rivals The competitive environment faced by NVIDIA Corporation is becoming increasingly complex. Its biggest customers - Alphabet (GOOGL.US) and Amazon.com, Inc. (AMZN.US) - are accelerating the deployment of their own custom AI chips. Meanwhile, AMD (AMD.US) and Intel Corporation (INTC.US) are competing for more spending share in the CPU market. In the first half of the year, AMD and Intel Corporation's stock prices surged by 171% and 278% respectively, leaving NVIDIA Corporation far behind. Behind this dramatic rotation is a structural trend of AI diffusing from cloud training to edge inference - the importance of CPUs in the inference scenario is being reevaluated by the market. However, NVIDIA Corporation's market share has remained almost unaffected. Data shows that by the end of 2025, NVIDIA Corporation held 97% of the server GPU market share, up from 95% at the end of 2024. Its H100 and the upcoming B200 GPU remain the dominant choice for AI data center workloads. NVIDIA Corporation is also actively positioning itself for new growth opportunities. Its standalone Vera CPU, targeting the shift towards AI inference, represents a potential market opportunity of $200 billion. The company plans to begin mass shipping the Vera Rubin hardware in the second half of 2026. Rumors of delays with Kyber and political headwinds from GEO Group Inc Recent negative factors affecting NVIDIA Corporation's stock price include rumors of product delays. Semiconductor research firm SemiAnalysis published a report on social media, stating that NVIDIA Corporation's Kyber NVL144 rack architecture has encountered significant delays and multiple cancellation decisions, with production progress falling behind by at least a year. NVIDIA Corporation has disputed the contents of the report. Political risks have also resurfaced for GEO Group Inc. It has been reported that U.S. President Trump announced the end of the temporary ceasefire agreement between the U.S. and Iran, leading to a rapid deterioration of the situation in the Middle East. Political uncertainties surrounding GEO Group Inc have heightened overall market risk aversion. Options market activity: Growing bullish bets against the trend In the context of a general sell-off of chip stocks in the market, NVIDIA Corporation's options market has shown noteworthy bullish signals. On Tuesday, the Philadelphia Semiconductor ETF fell by over 5%, but NVIDIA Corporation's stock price stubbornly closed higher, showing clear relative strength. Option market data shows that on that day, the volume of call options for NVIDIA Corporation surpassed 1.5 million contracts, more than double the volume of put options (less than 690,000 contracts). Bullish bias was also evident in the options market on Monday, with total option premiums for NVIDIA Corporation around $600 million, with about two-thirds linked to call options. One particularly notable operation initiated by a single trader involved buying call options with a total of $3.5 million, an exercise price of $200, and an expiry date at the end of July. According to SpotGamma data, the top five option contracts for NVIDIA Corporation are all short-term call options, indicating that some traders are betting on a rapid increase in stock price in the very near term. The most active are the call options with a strike price of $200, with nearly 170,000 contracts traded, with a total premium size of around $11 million. Whether the bullish signals in the options market will eventually a substantial breakthrough in stock price remains to be seen. However, there have been strong signs of support near the $200 mark in the past few days. Is the second half of the AI game a "value trap" or a "golden pit" for NVIDIA Corporation? NVIDIA Corporation is currently at a critical juncture. On one hand, with 97% market share in the server GPU market, continued expansion of its data center business, and the imminent launch of the Vera Rubin new platform, the company has a solid performance support. On the other hand, the diffusion of AI investment logic from "computing power monopoly" to "empowering the entire industry chain" is systematically compressing NVIDIA Corporation's valuation premium. Michael Bailey, Research Director at Fulton Breakefield Broenniman, stated: "Market sentiment has changed. You'll see some companies that were once not expected to perform well - like Micron - now becoming the focus." However, data shows that NVIDIA Corporation's revenue growth rate for this year is expected to rank fourth among S&P 500 Index components, yet the stock price remains lower than about half of the stocks in the index, including candy manufacturer Hershey Company and utility company Dominion Energy Inc. Randy Hare, Stock Research Director at Huntington Bank, believes that considering NVIDIA Corporation's revenue growth and stable earnings capability, the company's current stock price is undervalued. Hare said: "Stock price is closely related to financial reports. It has been showing steady performance." He is betting on NVIDIA Corporation's stock price recovering in the coming months. Data shows that the chip manufacturer is expected to reach revenue of $393 billion and profit of $228 billion by the end of the 2027 fiscal year ending January 31, 2027, representing a 90% and 82% year-on-year increase, respectively. Particularly noteworthy is that in the past three months, market expectations for NVIDIA Corporation's profit have been raised by 13%. Based on historical experience, NVIDIA Corporation has been able to thrive in periods of valuation multiple contraction. However, this time, the AI narrative has shifted from being "unique" to being "diverse" - the market no longer has just one story to tell about NVIDIA Corporation. In the second half of the AI game, where multiple tracks such as storage chips, custom ASICs, and CPU resurgence coexist, NVIDIA Corporation needs to prove that it is not only the "starting point" of the AI era but also the "endpoint." Bailey stated that NVIDIA Corporation has been able to prosper during periods of valuation multiple contraction in the past, which should make investors confident in holding the stock now. "It has been a tough time, but we have been through this before, seen prices fall rapidly and rebound quickly," he said. "Now the bulls can only hold their breath." Despite the pressure on the stock price, Wall Street's consensus on NVIDIA Corporation remains strongly optimistic. Goldman Sachs Group, Inc., in its latest research report, reiterated a "buy" rating on NVIDIA Corporation with a target price of $285, stating that the current valuation is "extremely attractive." Goldman Sachs Group, Inc. predicts that NVIDIA Corporation's data center business revenue will exceed $120 billion in 2026, a year-on-year growth of about 25%. Even considering market share erosion from custom AI chips and competitor CPUs, Goldman Sachs Group, Inc. still expects NVIDIA Corporation to achieve revenue of $635 billion, a 55% year-on-year growth. Analyst James Schneider of Goldman Sachs Group, Inc. pointed out: "There are concerns about the narrative of market share growth around custom ASICs, but given NVIDIA Corporation's growth rate, the valuation is extremely attractive." Goldman Sachs Group, Inc. also cautioned about potential risks, including intensifying competition in the AI chip market, supply chain uncertainty, and macroeconomic fluctuations. A more widespread consensus also leans towards optimism. TipRanks data shows that out of 37 analysts covering NVIDIA Corporation, 36 recommend a "buy" rating, with only 1 suggesting a "hold." The average target price for the next 12 months is $309.33, implying over 50% upside from the current level. However, not all voices are in agreement. Some analysts point out that NVIDIA Corporation is facing increasing competitive pressure, including the trend of large customers such as Alphabet and Amazon.com, Inc. developing their own chips, as well as competition from AMD and Intel Corporation in the CPU market.