Nvidia stock staged a comeback on Tuesday after a multi-day sell-off that cost the US chipmaker its crown as the world’s most valuable public company.

On Tuesday, Nvidia closed nearly 7% higher, reversing course after three straight days of declines, which caused some investors to worry that the excitement over the crucial role the company is expected to play in the artificial intelligence revolution may be cooling.

“While we do believe in AI, there have been signs of over-exuberance in the US market over the last month,” Jim Reid, a research strategist at Deutsche Bank, wrote in a note Monday.

On June 18, the chipmaking giant’s market capitalization hit $3.34 trillion, surpassing Microsoft’s to become the world’s most valuable company. Over the next three trading days, though, the company shed $430 billion.

Despite the rally in Nvidia’s shares on Tuesday, Nvidia’s market cap now stands at $3.10 trillion, falling to third place, behind Microsoft (MSFT) and Apple (AAPL), which have market caps of $3.35 trillion and $3.21 trillion, respectively.

“What we see with Nvidia is typical volatility, which is expected when a stock rises as quickly as Nvidia’s did,” Jochen Stanzl, chief market analyst at trading platform CMC Markets.

Nvidia’s stock has been on a tear, soaring more than 161% since January. The company’s chips power AI systems, including generative AI, the technology behind OpenAI’s ChatGPT that can create text, images and other media.

Market contagion?

Frenzy around the potential for AI to radically change the way we live and work — and make big returns for investors — has driven much of the stock market’s returns over the past year and a half.

Nvidia is a member of the so-called Magnificent Seven, the mega-cap tech companies whose shares greatly outperformed the broader US stock market rally last year. The S&P 500 index climbed 24.2% over 2023, compared with the more than 100% average rise in the stocks of the Magnificent Seven.

In a note published Monday, Deutsche Bank noted that, as a result of the seven stocks’ dominance, “the US stock market is close to being the most concentrated in history.” On Tuesday, the bank wrote that the decline in Nvidia’s stock the previous day had “held down US equity returns more broadly.”

On Tuesday, Nvidia’s rally helped lift the tech-heavy Nasdaq, which rose 1.3%. The S&P 500 closed 0.4% higher on Tuesday, as well. The Dow ended 0.8% lower.