Shares of Nvidia (NASDAQ:NVDA) surged nearly 7% on Tuesday, snapping out of a three-session tailspin that had erased about $430 billion from the artificial intelligence chipmaker's market value. Nvidia's shares finished at $126.09, recovering from a tumble that saw them lose around 13% from their June 18 close of $135.58. The recent decline followed a rally that accelerated after a 10-for-1 stock split that took effect on June 10.

Nvidia's breathtaking rise and its position as the dominant provider of chips to support artificial intelligence applications have made it emblematic of this year's tech-driven boom in U.S. stocks. Shares of Nvidia, which last week briefly became the world's most valuable company, are up 154% this year and have accounted for nearly 30% of the S&P 500's year-to-date return as of Monday's close, according to S&P Dow Jones Indices. The index itself is up 14.6% this year.

The recent selloff helped ease some worries about Nvidia's valuation, which now stands at about $3.1 trillion from a high of about $3.3 trillion earlier this month. Bullishness on Nvidia was evident in the options market, though the stock's recent share price slide appears to have made traders more cautious. Nvidia call options, typically used to bet on a rising stock price, outnumbered puts by 1.4-to-1 over the last three sessions, according to Trade Alert data. That compared to a call-to-put ratio of 1.6-to-1 for the prior 10 sessions.

At the same time, Nvidia short sellers, who bet on declines in the stock, have gained $4.97 billion in the past three sessions combined, according to data analytics firm Ortex Technologies. Meanwhile, retail investors have likely been buyers of the stock on the recent dip, said Mario Iachini, senior vice president of Vanda (NASDAQ:VNDA) Research, which tracks the behavior of individual investors.

U.S. stock index futures steadied in evening deals on Tuesday after a rebound in market darling Nvidia and other chipmakers supported Wall Street indexes. But investors remained on edge before key inflation data due later in the week, which is likely to factor into the outlook for interest rates.

Nvidia Rebound Buoys Wall Street

Artificial intelligence darling Nvidia Corporation (NASDAQ:NVDA) surged nearly 7% on Tuesday, rebounding from three straight days of steep losses, which were sparked by profit-taking and creeping doubts over AI demand. Gains in the stock spilled over into its chipmaking peers and also helped bolster Wall Street indexes against losses in other sectors. Nvidia rose 0.9% in after-hours trading.

Economically sensitive sectors remained weak in anticipation of PCE price index data later this week. The reading is the Federal Reserve’s preferred inflation gauge and is likely to factor into the central bank’s plans to begin trimming interest rates. Markets widely expect the Fed to announce at least one 25 basis point cut in September, although the central bank has given no such signal. The Fed had recently also slashed its outlook for rate cuts this year.

The S&P 500 rose 0.4% to 5,469.30 points, while the NASDAQ Composite surged 1.3% to 17,720.05 points on Tuesday. The economically sensitive Dow Jones Industrial Average lagged, falling 0.8% to 39,112.16 points. While Wall Street’s trajectory is likely to be determined by the path of interest rates, an AI-fueled boom in tech kept the S&P 500 and the Nasdaq close to record highs.

FedEx Surges on Positive Profit Forecast

Delivery and logistics giant FedEx Corporation (NYSE:FDX) surged in aftermarket trading, rising 14% after it forecast its fiscal 2025 profit just above Wall Street estimates. While the company clocked stronger quarterly earnings as it slashed expenses and tightened its operations, demand for package deliveries still remained weak. FedEx is seen as a bellwether for U.S. economic activity, especially through its delivery volumes, which remained weak.

Among other aftermarket movers, electric vehicle maker Rivian Automotive Inc (NASDAQ:RIVN) jumped 46% after it entered a joint venture with Volkswagen AG (ETR:VOWG), which will see the German automaker invest an initial $1 billion in Rivian. Rival Lucid Group Inc (NASDAQ:LCID) rose 10%.

Nvidia Short Sellers Gain Nearly $5 Billion

Nvidia (NASDAQ:NVDA) short sellers have raked in nearly $5 billion in paper profits from the AI chip designer's sharp selloff over the past three sessions, according to data analytics firm Ortex Technologies. The stock has slumped 13% and lost $430 billion in market capitalization since June 18, when it briefly became the world's most valuable company following a meteoric rise. Short sellers made $2.40 billion off Nvidia's 6.6% fall on Monday, Ortex said, the highest one-day gain since the start of their data in 2019.

Some market participants have attributed Nvidia's pullback to investors rotating out of high-flying AI stocks and into other sectors as 2024 approaches the halfway mark. Despite recent declines, optimism around Nvidia's role in powering the artificial intelligence boom has driven the stock up 145% this year, the second-best performer on the S&P 500.

Nasdaq Rally Fueled by Nvidia and Tech Megacaps

The Nasdaq rallied 1.3% on Tuesday, buoyed by strength in Nvidia (NASDAQ:NVDA) and other tech megacaps, while the Dow slipped as retailers weighed and investors waited for crucial inflation data due out this week. AI chip firm Nvidia climbed 6.8%, bouncing back after a three-session sell-off, and the broader chip sector outperformed with the Philadelphia Semiconductor index adding 1.8%.

Chips were among the biggest boosts for the S&P 500 technology index's recovery from a three-day slide while companies such as Alphabet (NASDAQ:GOOGL), up 2.7%, and Meta Platforms (NASDAQ:META), rising 2.3%, were the biggest boosts to the communication services index. The rest of the S&P 500's 11 major industry sectors were much weaker by comparison on Tuesday in contrast with the prior day's session when previously lagging sectors such as energy and utilities were the biggest gainers.

The Dow Jones Industrial Average fell 299.05 points, or 0.76%, to 39,112.16, the S&P 500 gained 21.43 points, or 0.39%, to 5,469.30 and the Nasdaq Composite gained 220.84 points, or 1.26%, to 17,717.65. The Dow pulled back from a one-month high hit on Monday and home improvement retailer Home Depot (NYSE:HD) was its biggest percentage decliner, dropping 3.6%.

Creating some jitters was retail giant Walmart (NYSE:WMT), whose shares fell 2.2% after its CFO flagged the second quarter as the "most challenging quarter" at the NYSE 2024 European Investor Conference in London. After three straight sessions of gains, the Dow Jones Transport Average closed down 0.8% after falling around 1.6% earlier in the day. Freight rail company Norfolk Southern (NYSE:NSC) was its second-biggest decliner after an analyst cut the price target and the National Transportation Safety Board reviewed a derailment last year and recommended safety changes.

However, after dipping 0.05% in the regular session, transport heavyweight FedEx (NYSE:FDX) rallied 15% in after-the-bell trading when it forecast 2025 profit above analysts' estimates. It said it expected planned cost reductions to deliver margin gains, even as revenue remains challenged by lackluster demand for parcel shipping.

The most anticipated economic data due this week is the personal consumption expenditures (PCE) price index—the Fed's preferred inflation gauge—on Friday. Spirit AeroSystems (NYSE:SPR) shares fell 3.96% to $31.76 after a media report on Monday said Boeing (NYSE:BA) offered to buy the airplane fuselage maker in a mostly stock deal valuing its key supplier at about $35 per share. Boeing shares also fell 2.2%.

Cruise operator Carnival (NYSE:CCL) Corp advanced 8.7% after raising its annual profit forecast for the second time this year. Declining issues outnumbered advancers by a 1.62-to-1 ratio on the NYSE where there were 122 new highs and 87 new lows. On the Nasdaq, 1,681 stocks rose and 2,589 fell as declining issues outnumbered advancers by a 1.54-to-1 ratio. The S&P 500 posted 20 new 52-week highs and 4 new lows while the Nasdaq Composite recorded 45 new highs and 178 new lows.

On U.S. exchanges, 10.01 billion shares changed hands compared with the 11.90 billion moving average for the last 20 sessions.

Conclusion

Nvidia's resurgence has not only restored investor confidence but also reignited optimism in the broader technology sector. As the market braces for upcoming inflation data, Nvidia's performance underscores the volatile yet transformative potential of AI-driven innovation in shaping the future of financial markets. With significant movements in options trading, short selling, and retail investor activity, Nvidia remains a focal point in the ever-evolving landscape of U.S. equities, symbolizing both the risks and rewards of high-stakes investing in cutting-edge technology.