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The cheapest-ever sell-off in Nvidia shares, which wiped a record $279 billion off the chipmaker's market value on Tuesday, has traders looking to the charts for signs that the pain may be over. One mark in particular stands out and is likely to point the way for the stock's short- to medium-term performance.

For Jay Woods, chief strategist at Freedom Capital Markets, the $100 per share mark is a key point to watch – that's about the price of the lowest closing price in the last month. Nvidia shares fell 1.66% to $106.21 on Wednesday after previously fluctuating between gains and losses.

Nvidia shares face direction decision

“I don't want to see the stock make a new all-time low by breaking below the August low.” “That would really suggest that things have changed, at least from a technical perspective,” Woods said. “I think the stock will find a bottom around $100 and then move sideways for a while.”

The recent sell-off – shares have fallen 14% over the past three trading days – was sparked by the chipmaker's quarterly results, which fell slightly short of lofty expectations. Investor jitters were also heightened by two research reports released on Tuesday that urged caution over corporate spending on artificial intelligence.

More bad news came after the market closed: Bloomberg reported that Nvidia had received subpoenas as part of an antitrust investigation by the US Department of Justice. But Nvidia denied this report, saying that while the company is in contact with the agency, it has not been subpoenaed.

Nvidia: Lack of momentum

The problem for Nvidia shares is that there isn't much on the calendar that could provide a positive catalyst, said Michael Kirkbride, portfolio manager at Evercore Wealth Management.

“We are in a bit of a vacuum right now.” We are through the reporting season and there is a lot of important economic data coming out this month. “Against this backdrop, great caution is needed,” he said. “When you are in a trading vacuum, the market becomes very fast-moving and volatile.”

Nvidia's slump, which dragged down global chipmakers and venture capital stocks, comes after a turbulent few months for the AI ​​market darling. Tuesday's move marked the seventh time in two months that shares have fallen 6% or more. A measure of 30-day volatility in Nvidia shares has hit its highest level since mid-2022, according to data compiled by Bloomberg.

Risks outweigh opportunities

Investors will also be looking back at the last month to get a sense of where Nvidia stock might bottom out. In August, Nvidia entered a correction that saw the stock fall 27% from its June peak before recovering and at one point coming within 5% of a record. The reasons for that plunge – macroeconomic fears combined with renewed worries about the sustainability of the AI ​​hype – are now being revisited.

Concerns about the relatively low profits Nvidia's customers are making in the face of massive AI investments are at the heart of research reports released Tuesday by JPMorgan Asset Management and BlackRock Investment Institute.

Michael Cembalest, chairman of markets and investment strategy at JPAM, wrote that broader demand from enterprise customers – not just clients like OpenAI – is needed over the next 12 to 18 months to justify the heavy spending on the technology.

Jean Boivin, head of the BlackRock Investment Institute, said investors need to be patient because building data centers and increasing processing capacity typically “takes years, not quarters.”

Still, Boivin said investors should remain overweight in AI stocks, with the recent sell-off in the technology sector “providing scope for rebuilding holdings.”

Analysts remain optimistic in the long term

Woods of Freedom Capital and Kirkbride of Evercore WM also continue to view Nvidia positively in the long term.

Woods sees no reason to panic about this week's share price slump, while Kirkbride said there was nothing fundamentally wrong with the recently released earnings report.

“We are still long-term shareholders and we have not heard anything that would change the story, either about Nvidia or about its customers and their spending plans,” Kirkbride said.

“We would be buyers here.”

Tech chart of the day

Nvidia may be only the third-largest member of the S&P 500 with a weighting of 6.1%, but it has become the benchmark's main driver this year. The chipmaker's share price has dictated the trend for the broader market since January, and its slide this week does not bode well for the index.

FMW/Bloomberg

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