If we look at history, a 20% drawdown is not a big deal... unfortunately. Figure 1 shows drawdowns on the Nvidia stock since 1999.
Another example would be Cisco Systems in the 1990s - see Figure 2. On the way to the top in 2000, we had several drawdowns much larger than 20%.
But there is also an interesting aspect in the case of Nvidia, looking at the price since 2016 - see Figure 3. Since 2016, we have experienced 3 strong growth waves and two over 50% drawdowns related to:
(1) Bitcoin mining craze 2016-2018,
(2) pandemic and gaming frenzy of 2020-2021, and
(3) AI in 2022 – 2024.
During the transition from (1) to (2) and from (2) to (3), Nvidia experienced revenue shortfalls ("air pockets") related to prior market saturation, which correlate with large drawdowns - see Figure 4.
It can be assumed that, to a large extent, the target drawdown size this time may depend on the fact whether we are going to see another "air pocket" in the company's business...
Nvidia reports its earnings on May 22 this year.
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