Shares of Nvidia (NVDA 3.17%) were under pressure on Thursday, falling as much as 5.1%. As of 12:52 p.m. ET, the stock was still down 4.3%.
The catalysts that sent the chipmaker lower were the most recent reading on inflation and a report that a key artificial intelligence (AI) supplier could become a rival.
NASDAQ: NVDA
Key Data Points
A scary outlook
The first factor weighing on Nvidia stock was the most recent report on inflation. Prices inched higher in September, according to the latest report released by the U.S. Department of Commerce. Personal consumption expenditures, the Federal Reserve Bank's favored gauge of inflation, rose 2.1% year over year, or at a seasonally adjusted rate of 0.2%. Both measures were in line with economists' estimates. Stripping out the volatile food and energy prices put the rate at 2.7%.
While an improving read on inflation should be considered good news, it also increases the likelihood that the Fed could pause its campaign of interest rate cuts when it meets next week.
It's also been suggested that Softbank (SFTB.Y 3.24%) is planning to use Arm Holdings (ARM +1.95%) technology to power "a new network of data centers, purpose-built to train and run AI systems," according to a report in the Financial Times. Softbank holds a 90% stake in Arm, and such a move would pit the company against Nvidia, which holds a commanding share of the GPU data center market. This would also mark a "dramatic departure" from the company's historical business model of developing and licensing its intellectual property.
Not all doom and gloom
It's important to take a step back and put both these news items in context. The economy is on the long road to recovery, which will no doubt result in fits and starts, so it really doesn't matter if the Fed cuts interest rates next week -- it merely impacts investor sentiment.
Additionally, Nvidia's technology is deeply entrenched in the fabric of AI, and that's not likely to change anytime soon. Furthermore, Arm makes the vast majority of its income from a few of the world's largest chipmakers -- including Nvidia -- so it's highly unlikely the company is planning to bite the hand that feeds it. And at roughly 33 times next year's expected earnings, Nvidia is still attractively priced, particularly when viewed in the opportunity represented by AI.
