Shares of chipmaker Nvidia experienced a sharp decline of nearly 7% in early trading on Thursday, continuing the previous day's steep drop before clawing their way back into positive territory. Investors quickly seized the opportunity to "buy the dip," recognizing Nvidia as the poster child for AI-related opportunities despite recent stumbling amid a broader rotation out of mega-cap tech stocks.

Although Nvidia shares have seen recent declines, they remain up by an impressive 130% so far this year. The stock rebounded from an initial morning dive on Thursday as investors capitalized on the dip amid an extension of the tech stock sell-off that occurred the day before.

Nvidia shares initially slumped by as much as 6.8% on Thursday morning, following Wednesday's 6.6% decline. This decline had a notable impact on the S&P 500, which slipped by as much as 0.7%. The tech stock sell-off stemmed from concerns raised by earnings reports from Tesla and Alphabet, shaking Wall Street's confidence in the AI trade that had propelled stocks to record highs throughout the year. The S&P 500 marked its first daily decline of 2% or more since February 2023, while the Nasdaq Composite experienced its biggest drop since October 2022, losing 3.6%.

In 2023, Nvidia emerged as the poster child of the bull market, with its shares surging by an impressive 239% as the demand for AI chips skyrocketed, leading to increased sales and profits. Even this year, the stock continued to soar by 172% until the equity market experienced a significant upheaval earlier this month.

The catalyst for the recent decline in Nvidia shares can be traced back to a soft inflation report on July 11. The report sparked optimism that the Federal Reserve would cut interest rates soon, triggering an investor exodus from cash-rich big tech companies in favor of smaller ones expected to benefit the most from lower rates. Since then, Nvidia shares have experienced a decline of over 15%, while the small-cap Russell 2000 index has seen a rise of 10%.

Despite the recent setbacks, Nvidia remains the second-best performing stock in the S&P 500 this year, boasting an impressive return of 133%. In afternoon trading, the stock demonstrated resilience, with a modest increase of about 0.5% on heavy trading volume.

Investors are closely watching the performance of Nvidia and other tech stocks as the industry experiences a period of heightened volatility. The ability of these companies to navigate ongoing market shifts will be crucial in determining their long-term success in an increasingly uncertain landscape.