Nvidia shares rocketed 1,200% — now momentum has slowed to 19% as investors question the AI boom. Is your nest egg at risk?

The massive repurchase comes as Nvidia looks to return more of its record profits to shareholders. The company reported nearly $59.7 billion in net income in its fiscal second quarter, up 126% from a year earlier. It returned roughly $26 billion to shareholders during the quarter through share repurchases and cash dividends, and it clearly has more to give.

But the record buyback arrives as Nvidia’s stock has lost considerable momentum. After soaring roughly 1,200% since ChatGPT kicked off the AI boom, Nvidia shares are up just 19% so far this year. That’s just modestly ahead of the S&P 500’s 13% gain and well behind the S&P 500 Information Technology Index, which has climbed more than 28% this year.

Why Nvidia stock has lost momentum

Nvidia remains at the center of the advanced chip industry, controlling more than 80% of the market for GPUs used in AI, according to estimates cited by Reuters. But despite its dominant position, investors are no longer willing to pay as much for its earnings as they were at the height of the AI boom.

The shift became more pronounced over the summer, as investors rotated into other semiconductor stocks. Nvidia’s fiscal second quarter was enormous, but even its $108 billion sales forecast for the current quarter fell short of Wall Street’s more bullish estimates.

Nvidia’s valuation declined along with those expectations. Earlier this month, the stock briefly fell below 17 times expected earnings over the next 12 months, a valuation Nvidia hadn’t seen in more than a decade, according to Bloomberg data. The multiple was roughly twice that level a year ago.

Memory stocks were among the biggest beneficiaries of this rotation. “You’re seeing these companies where expectations were very low — the Microns of the world — stealing the spotlight,” Michael Bailey, director of research at Fulton Breakefield Broenniman, told Bloomberg.

More recently, some of those gains have reversed as concerns about valuations spread beyond Nvidia. Investors have also questioned whether revenue and profits generated by AI will ultimately justify the enormous sums being spent on chips and data centers.

Goldman Sachs estimates that the five largest hyperscalers — Amazon, Alphabet, Microsoft, Oracle and Meta Platforms — would need to generate roughly $300 billion in annual AI revenue just to break even on their investments.

This is a very high bar. Hyperscaler cloud revenue was running only about $70 billion a year above its pre-AI trend in the second quarter, while Goldman estimates annual end-user spending on AI applications would eventually need to approach $1 trillion for the companies to generate solid returns.

What Nvidia’s slowdown means for your nest egg

Although Nvidia is only one company, it holds enormous sway over retail investment portfolios, both directly and indirectly.

Semiconductor companies, including Nvidia, accounted for 40% of the S&P 500’s total earnings growth in the second quarter, according to J.P. Morgan Asset Management. FactSet data also shows Nvidia was among the five largest individual contributors to the index’s earnings growth during the quarter. The chipmaker also accounts for roughly 8% of the S&P 500’s total market value, based on Augur Infinity data cited by Yahoo Finance.

This gives Nvidia an unusually large footprint in retirement accounts and other long-term portfolios. Investors who own an S&P 500 Index fund have substantial exposure to the chipmaker even if they have never purchased Nvidia shares directly.