ASML & NVDA Tumbled ! Thanks Biden & Trump ?
There is a saying, “Never mix business with pleasure”.
Could a similar saying of “Never mix business with politics” be enforced?
This was what has transpired in the pat 2 days as dusty politicians - Biden & Trump alike decided to turn up a notch in their political rhetorics.
First, it was the Biden administration saying that it may ratchet up restrictions on companies working with China, including ASML Holding NV and of course Nvidia. (see above)
There are already restrictions on the equipment that can be sold into China, but limiting how workers can maintain equipment could curb demand even further.
To be seen on equal footing, the returning buffoon told Bloomberg Businessweek that Taiwan should pay the US for its defense as it does not give US anything in return. (see above)
Making it sound as though Taiwan got advanced military equipment for “free”.
To imply that TSM did not collaborate with US to advance the semiconductor industry is pure fiction.
Thanks to these two politicians’ public stunts - technology stocks took a hard beating on Wed, 17 Jul 2024. (see below)
Fall of the Semiconductor stocks on Wed 17 July 2024
Tech stocks’ Wednesday performances: (self-explanatory)
$ASML Holding NV(ASML)$ fell by -12.74% to $932.06..
$ARM Holdings Ltd(ARM)$ fell by -9.95% to $161.70.
$Taiwan Semiconductor Manufacturing(TSM)$ fell by -7.98% to $171.20.
$BROADCOM INC PFD SER A 22(AVGOP)$ fell by - 7.91% to $155.98
$NVIDIA Corp(NVDA)$ fell by -6.64% to 1$17.97.
$Micron Technology (MU)$ fell by -6.27% to $119.50.
$Intel Corp (INTC)$ rose by +0.35% to $34.46.
ASML Q2 2024 earnings.
The irony of it was ASML actually reported a better-than-expected quarterly earnings versus LSEG consensus estimates: (see below)
Net sales: 6.24 billion euros ($6.8 billion) versus 6.03 billion euros expected.
Net profit: 1.58 billion euros versus 1.43 billion euros expected.
Q3 2024 Outlook.
Like its peers, ASML kept its outlook for the full year unchanged.
However, it forecast Q3 2024 net sales of between 6.7 & 7.3 billion euros.
Against, analysts expectations of revenue to be 7.6 billion euros.
This did not sit well with Wall Streets and they let ASML have it.
Coupled with the fearmonger threats of further curbs, drove the stock down by almost -13%, resulting in it falling below the $1,000 threshold, for the first time since it broke above it on 05 Jun 2024.
The injected fear is “real” because looking at ASML’s quarterly earnings, 49% of its sales from China alone.
Highlighting the upside risk is at stake, should further export restrictions be enforced on them.
What’s @ Stake?
As much as the US has tried to disrupt China's advanced semiconductor manufacturing, many companies still rely on China for a large amount of revenue.
If companies like Nvidia, Arm, and Micron are to be targeted, they could see a drop in demand just as they're ramping up AI demand worldwide.
This will definitely impact their top & bottom lines.
Nvidia’s Pull Back.
Taking a step back, will provide better overview on the #1 chipmaker.
On 15 May 2024 it broke out of a second-stage cup-with-handle base with a $92.22 buy point. (see above)
On 23 May 2024, the stock jumped to new highs after the company crushed Q1 2024 forecasts.
By late May 2024, it has gained +20% from its lower entry.
Instead of stagnating due to profit taking, the chipmaker kept charging higher.
Between June 6 to 18, one of the first signs that Nvidia was “peaking” — when its volume started drying up even as the stock continued to scale new levels.
On 20 Jun 2024, Nvidia reached an all-time high during morning trading before profit-takers took over and the stock reversed sharply lower, closing -3.5% lower.
On 21 Jun 2024, it lost another -3.2% where sell-off came in higher-than-average volume.
Nvidia started calming down after its June 20-24 tumble, its worst 3-day rout since December 2022.
On 03 Jul 2024, Nvidia shot up around +4.5% in light volume; helping it bounced off its 21-day line. (see above)
Between 12 - 17 July, Nvidia lost -6.62%, dropping 4 of the past 5 trading days. Volume was (again) below average Wednesday.
It looks as if the June sell-off is having a second leg down in July and the stock is back near the low point around $118.
On Wed, 17 Jul 2024 where the tech-heavy Nasdaq lost -2.8%, Nvidia stock fell even harder.
Nevertheless, Nvidia still has a big cushion from the $92.22 and $97.40 buy points.
Nvidia’s Profit & Estimates.
Nvidia is the leader of the artificial intelligence (AI) investment theme.
It has graduated from being a premier designer for high performance computer graphic chips and became the default go to for AI-chips.
Breakthrough Earnings.
Nvidia is a top company in the area of AI investment.
They used to make chips for fancy computer graphics, but now their chips are also used for the complex calculations needed for artificial intelligence (AI) processings.
On 22 May 2024, Nvidia's Q1 2024 earnings reported were out of this world:
Earnings per share rose by +461% YoY.
Sales revenue grew by +262% to $26 billion.
It also reported a record $22.6 billion (a +427% YOY gain) from data centers.
And just like that, Nvidia's stock spiked above the $1,000 per share threshold, so they did a stock split on June 7th. This means each share was split into 10 shares, making the price lower but giving shareholders more shares.
According to MarketSurge, analysts expect Nvidia's earnings growth to slow down over the next few quarters:
Q2 2024 - +137% growth YoY.
Q3 2024 - +75% growth YoY.
Q4 2024 - +49% growth YoY.
In summary, Nvidia’s earnings are still expected to be much higher than FY 2023.
According to FactSet:
For FY 2025, earnings per share (EPS) is expected to be $2.71, a gain of +108% YoY.
For FY 2026, earnings per share (EPS) is expected to be $3.67, a gain of +36% YoY.
My viewpoint : Nvidia - still a Buy?
The stock price is still considered high even though it's gone down recently.
Like MarketSurge, I feel it is not a good time to buy yet.
In 2023, Nvidia had a huge +239% spike.
YTD, it is still up +144.94% despite recent corrections.
Would be prudent to hold off, buying of this AI chip stock for now.
Wait until the selling calms down and there's a clear signal (another base to form) to buy again, like a new price floor or a good buying opportunity.
Based on Barchart’s basic analysis:
Pivot point 1st Resistance level (high) - $123.47.
Pivot point 2nd Resistance level (high) - $125.86.
Pivot point 1st Support Point (Low) - $117.63.
Pivot point 2nd Support Point (Low) - $114.18.
It is not a buy right now.
Is Nvidia a bull-trap in the making as we continue to navigate through the narrow lanes separating business and politics; which to me are getting narrower by the day.
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Can’t wait for Mon, next week is a shorts bbq week, when S&P recovers, close them shorts while you can, you have been warned.
So what’s the proper price for $NVIDIA Corp(NVDA)$
Volatile market ahead for couple of months.
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