Why Is Nvidia down? Is It A Buy Or a Bye?
πππ$NVIDIA Corp(NVDA)$
Why is it down so badly?
I believe that investors are worried that AI play may seem to be overhyped and that its sky high returns may take longer to materialise than many have hoped.
Nvidia reported strong Q2 24 earnings on August 28 but growth has slowed compared to previous quarters. The data center segment drove significant revenue growth but Nvidia's heavy reliance on this segment posts risks if it slows down.
However Nvidia's Q2 24 has surpassed Wall Street's expectations with Earnings Per Share 68 cents versus 65 cents expected, according to FactSet. Revenue is up 122% to USD 30 billion versus USD 28.7 billion expected.
For the current quarter outlook, Revenue is expected to be USD 32.5 billion versus USD 31.7 billion.
Adjusted gross margin of 75.7% down from 78.9% in the previous quarter. Nvidia expects full year gross margin in the mid 70% range.
Nvidia has raised the size of its share buyback program by USD 50 billion.
However strong earnings were not enough to lift Nvidia's share price and it dropped 6.4% on last Thursday's trading.
Nvidia says it will continue to grow, just not at the pace that investors expect.
Another reason for Nvidia's share price drop is the news reported by Bloomberg that the US Department of Justice (DOJ) subpoenaed the company and other companies for information to determine whether Nvidia has violated anti trust laws. However this allegation was later denied by Nvidia, saying it did not receive the antitrust subpoena from DOJ.
Nonetheless potential antitrust probes tend to make investors jittery.
Another reason for Nvidia's share price drop is the delay in delivery of its Blackwell chips due to some design flaws. However based on Nvidia's outlook for the Blackwell chips in terms of production ramp up and revenue generation, it will not derail the entire production of Blackwell chips.
Wall Street Analysts are still bullish on Nvidia with a Buy rating, Average Target price of USD 151.79, an upside potential of 41%. This is according to 43 analysts surveyed by Tipranks.
I have invested in Nvidia since 2 months ago and in that time, I have seen Nvidia's shares drop to below USD 100.
Fundamentally nothing has changed for Nvidia as it is still the dominant leader in specialised AI chips with 80% of the market share. Nvidia's Blackwell chips are more energy efficient and have significantly more computing power for both training and inference calculations that are so important for AI development. I expect another big wave of AI investments from Big Tech companies such as $Microsoft(MSFT)$
Nvidia is also not sitting on its laurels as it plans to release a new family of AI chips every year from its prior release interval of 2 years. After Blackwell chips, it will be Rubin.
Nvidia stands in a unique position as both the largest enabler as well as beneficiary of surging AI development.
Is Nvidia a Buy or a Bye? I believe it is absolutely a Buy! I will continue to add to my Nvidia shares and if it drops below USD 100, I will simply buy more.
As Warren Buffett likes to say When there is Fear in the markets, it is time to be greedy.
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