Nvidia’s Brutal Selloff Triggers a Signal Unseen Since 2019 — Is the Worst Over?

Nvidia Corp. (NASDAQ:NVDA) found buyers Wednesday after a punishing start to the week, and one momentum gauge helps explain why.

The stock’s 14-day relative strength index fell to about 24 this week, according to Benzinga Pro data, with readings under 30 considered oversold. Nvidia had not been this stretched to the downside since late May and early June 2019, when the RSI bottomed at 18.8 during the U.S.-China tariff fight and Huawei blacklisting.

The 2019 selloff hit the whole chip sector. The current one is mostly about Nvidia.

• NVDA stock bounced Wednesday. Get all the latest developments. 

Chief Executive Jensen Huang admitted to an affair with a woman U.S. officials suspect of spying for China, and the board opened an independent investigation Sunday. President Donald Trump said Monday the FBI was looking into the matter, and Nvidia shares closed more than 4% lower that day.

The stock lost another 5.47% Tuesday, the same day Nvidia brought in law firm Wachtell, Lipton, Rosen & Katz to examine whether company secrets or national security had been compromised.

Shares turned higher Wednesday after the two-day slide. Whether the bounce lasts depends less on momentum indicators and more on what the board finds.

Top-Pick Lists Shrink, Buy Ratings Stay

Two of the biggest names on Wall Street pulled Nvidia from their best-ideas lists this week without turning bearish. Morgan Stanley removed the stock as a top pick Wednesday after it fell more than 25% from its Oct. 2 inclusion, a move dictated by the bank’s stop-loss rule, according to CNBC.

A day earlier, Bank of America cut Nvidia, Micron Technology Inc. (NASDAQ:MU) and Lam Research Corp. (NASDAQ:LRCX) from its US 1 List. Bank of America kept its Buy rating, and Morgan Stanley reiterated its Overweight rating.

Others went further. Baird cut the stock to Neutral on Wednesday and slashed its price target to $200 from $500, pointing to rising odds of a CEO change.

Earlier in the week, Baird analyst Tristan Gerra warned the scandal could lead to limits on Nvidia’s ability to sell chips to China and work with other foreign entities. Aletheia Capital downgraded the shares to Hold on Monday. Mizuho, Citigroup and Wells Fargo all trimmed price targets.

Prediction markets put the odds of a Huang departure announcement by the end of next March at 30% as of Wednesday afternoon.

Most analysts, though, do not expect the probe to push the longtime CEO out. Unlike Meta Platforms or SpaceX, Nvidia has no dual-class share structure giving its co-founder majority voting control.

Dan Niles of Niles Investment Management, who told Yahoo Finance he has known Huang for 30 years, brushed off the personal side of the story.

"Would you want a drunkard and a womanizer leading you in World War II? Answer is absolutely. That was Winston Churchill," Niles said.

Nvidia reports quarterly results next week. An oversold RSI might flag exhausted sellers, but the next leg likely hangs on what management says about Huang’s future.

NVDA Price Action: Nvidia shares were up 2.92% at $173.73 on Wednesday, according to Benzinga Pro data.

Photo: FotoField / Shutterstock