Nvidia stock slips after five-day rally: what's going on?

Nvidia stock NVDA slipped on Thursday after giving up early gains, as investors paused following a strong five-session rally that has lifted the chipmaker's stock by about 12%.

The stock was down roughly 0.7% at around $217 in afternoon trading.

The broader market was little changed as investors monitored developments in the Middle East and assessed another round of corporate earnings.

The S&P 500 traded around the flatline, while the Nasdaq Composite gained 0.2%. The Dow Jones Industrial Average fell 171 points, or 0.3%.

No company-specific catalyst immediately explained the decline, with the move appearing to reflect profit-taking after the recent advance.

Rally supported by AI leadership

Nvidia has rallied over the past week as investors regained confidence in the company's dominant position in the artificial intelligence semiconductor market.

One recent boost came after Elon Musk said SpaceX would standardise its AI infrastructure on Nvidia's processors.

During SpaceX's latest earnings call, Musk said the company would build exclusively on Nvidia's Vera Rubin architecture, reinforcing confidence that the chipmaker remains the preferred supplier for large-scale AI infrastructure projects.

The announcement helped ease concerns that growing competition from rivals and custom chip developers would rapidly erode Nvidia's market leadership.

Valuation draws investor interest

The recent pullback earlier this year has also made Nvidia's valuation more attractive relative to its historical growth profile.

Morningstar said Nvidia now fits the profile of a growth-at-a-reasonable-price investment and maintained its $280 fair value estimate.

The research firm said the shares continue to trade at roughly a 30% discount to its fair value estimate and described Nvidia as the leading supplier of graphics processing units, software, and networking technologies used in artificial intelligence.

Morningstar expects major cloud providers to continue developing proprietary AI chips while competitors such as AMD expand their accelerator offerings.

However, the firm said those efforts are likely to erode only a limited portion of Nvidia's competitive position.

Focus shifts to quarterly earnings

Investor attention is increasingly turning to Nvidia's earnings report, scheduled for Aug. 26.

The results are expected to provide another test of whether the company can sustain its rapid growth as spending on AI infrastructure continues across the technology sector.

According to FactSet, Wall Street's average price target on Nvidia stands at $314.29.

Bernstein recently reiterated its Buy rating and a $315 price target, arguing that continued expansion in AI infrastructure spending and new sources of demand support further upside for the stock.

With Nvidia's recent rally restoring momentum, investors are now looking to the company's quarterly results for evidence that demand for its AI hardware remains strong enough to justify continued growth and premium valuations.