Question: How would you react if you held Nvidia stock (NASDAQ: NVDA) and its value fell by 60% or more in the upcoming months? Although this might seem extreme, such an occurrence has happened before and could repeat itself. Earlier this year, Nvidia stock experienced a sell-off, dropping from approximately $148 in mid-January to around $115 now, which represents a nearly 23% decrease. This decline has been fueled by several factors, such as the introduction of more resource-efficient AI models like China’s DeepSeek and worries that decelerating investments in generative AI might reduce the demand for Nvidia’s GPUs. Additionally, the overall market is undergoing a significant sell-off, spurred by increasing concerns about a U.S. recession following tariffs imposed by President Donald Trump on major trading partners.
Here’s the point: The key takeaway is that during a downturn, NVDA stock might incur substantial losses. Data from 2022 indicates that NVDA stock lost more than 60% of its value in only a few quarters. Currently, Nvidia stock has decreased from $148 to $115 in roughly two months. This raises the question: could the stock continue its downward trend and reach approximately $60 if a similar situation were to unfold? Naturally, individual stocks are generally more volatile than diversified portfolios. Therefore, if you are looking for growth with reduced volatility, you might consider the High-Quality portfolio, which has outperformed the S&P 500 and generated returns of over 91% since its inception.
Why Is It Relevant Now?
Slowdown in AI Demand: Over the last two years, companies have significantly invested in training AI models, with Nvidia’s GPUs becoming the preferred option due to their performance and efficiency. The short-term outlook remains robust, as tech giants such as Google and Microsoft are increasing capital expenditures for 2025 to expand their AI cloud infrastructures. Nevertheless, demand may eventually taper off. Since AI model training is predominantly a one-time, compute-intensive process, it could eventually decelerate. As models increase in size, incremental performance improvements are anticipated to diminish, and the supply of high-quality training data might become a limiting factor. Consequently, as the demand for training declines, GPU sales could also decrease. Therefore, as discussed in our analysis here on the macro picture, the U.S. economy might enter a downturn, potentially even a recession, which could further affect GPU sales. Because AI investments continue to be unprofitable for most companies, they may be prime candidates for cost-cutting measures during an economic downturn. This situation could significantly impact Nvidia.
The transition to more resource-efficient AI models could also affect Nvidia. China’s DeepSeek model, launched in January, attracted attention for prioritizing software-driven optimization instead of relying on hardware, which could potentially reduce the demand for GPUs. The company reports that it spent only $5.5 million to train its V3 model, which is only a fraction of the hundreds of millions that firms such as OpenAI are said to have spent. Since DeepSeek’s model is open source, major tech companies might adopt similar cost-cutting strategies. If this approach is widely implemented, it could further reduce the demand for AI computing power. For further information, see how DeepSeek impacts Nvidia
The U.S. government has imposed export control restrictions on most of Nvidia’s latest AI chipset products destined for China, with the exception of the H20 chips, citing national security concerns. Nevertheless, reports indicate that gray market resellers are using entities registered outside of China to purchase servers equipped with Nvidia’s latest products from companies in various countries, including Singapore, Malaysia, Taiwan, and Vietnam. This is particularly concerning as Singapore has emerged as Nvidia’s second-largest market, generating approximately $23 billion in sales in FY’25 (around 18% of revenue), compared to only $2.3 billion (8% of revenue) in FY’23. Singapore has now initiated an investigation into these potential loopholes. Such developments could potentially affect Nvidia’s overall revenue to some degree. For further details, see how Trump’s tariffs affect Nvidia stock.
How resilient is NVDA stock during a downturn?
NVDA stock has experienced a decline that was marginally more severe than that of the benchmark S&P 500 index during some recent downturns. Are you concerned about how a market crash might affect NVDA stock? Our dashboard How Low Can NVIDIA Stock Go In A Market Crash? provides a detailed analysis of the stock’s performance during and following previous market crashes.
Inflation Shock (2022)
• NVDA stock declined by 62.7% from a peak of $30.12 on 3 January 2022 to $11.23 on 16 October 2022, compared to a 25.4% peak-to-trough drop for the S&P 500
• The stock fully rebounded to its pre-crisis peak by 17 May 2023
• Since then, it has risen to a high of $149.43 on 6 January 2025 and is currently trading at approximately $115
COVID Pandemic (2020)
• NVDA stock dropped by 37.6% from a high of $7.87 on 19 February 2020 to $4.91 on 16 March 2020, compared to a 33.9% decline for the S&P 500
• The stock fully recovered to its pre-crisis peak by 11 May 2020
Global Financial Crisis (2008)
• NVDA stock declined by 85.1% from a high of $0.99 on 17 October 2007 to $0.15 on 20 November 2008, compared to a 56.8% drop for the S&P 500
• The stock fully rebounded to its pre-crisis peak by 13 May 2016
Valuation
NVIDIA’s Revenues have soared, increasing at an average rate of 80.1% over the past three years, which is significantly higher than the 6.3% increase in S&P 500 revenues. Nonetheless, Nvidia’s valuation remains attractive given its strong growth, with the stock trading at approximately 26x consensus FY’26 earnings. Yet, there are some potential risks. In recent quarters, net margins have exceeded an impressive 50%, propelled by robust pricing power and high demand for AI chips. Still, these margins could be at risk if demand declines or if competition intensifies. A slowdown in demand could result in reduced pricing, lower sales volumes, and a significant decline in profitability.
Considering the potential for a slowdown in growth and broader economic uncertainties, ask yourself this question: Will you continue holding your NVDA stock, or will you panic and sell if it starts falling to $70, $60, or even lower prices? Maintaining a position in a declining stock is always challenging. Trefis partners with Empirical Asset Management—a Boston-area wealth manager—whose asset allocation strategies delivered positive returns during the 2008-09 period, when the S&P lost over 40%. Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients with better returns and reduced risk compared to the benchmark index, offering a less volatile experience as demonstrated by the HQ Portfolio performance metrics.
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