Insights

Why Nvidia Investors Are Bullish Today

What happened
On Tuesday morning, stock markets turned from red to green. After three days of non-stop selling, the S&P 500 is up a modest 0.2% and the tech-heavy Nasdaq is gaining back 0.4%.
Individual tech stocks are doing even better. Semiconductor-star Nvidia (NASDAQ: NVDA) sold off along with all the other tech stocks last week as investors worried about rising inflation, rising interest rates, depressed investor confidence — and a potential crash in demand for computer graphics chips. But this morning, Nvidia shares are up a solid 2.4% as of 11 a.m. ET.
Image source: Getty Images.

So what
What sparked Nvidia’s rally today? The most on-point news on Nvidia this morning is that cloud-based data storage company NetApp (NASDAQ: NTAP) is teaming up with Nvidia to work on artificial-intelligence data centers. But the companies’ press release on this collaboration doesn’t contain a lot of detail on the size of this project or what it means for Nvidia (or for NetApp, either) in terms of potential revenues or the impact on growth rates. 
While this is an incremental positive for both stocks, I don’t see it as the kind of news that would justify investors making a U-turn on Nvidia stock and suddenly buying after three straight days of selling.
Now what
What we’re seeing here today is a relief rally, plain and simple — investors buying on the realization that the stock market turned green today and the sell-off may be at an end. Problem is, it may not be at an end.
Consider this: None of the factors that sparked the sell-off last week has actually changed. Inflation is still running hot at 8.5%. The Fed is still determined to contain that inflation.
It may have promised not to raise interest rates 0.75% at its next meeting, but it still did raise interest rates 0.5% last week — the biggest interest rate hike in more than 20 years. (And it appears intent upon doing at least two more similarly sized hikes later this year). Higher interest rates make everything from corporate borrowing to credit card bills more expensive, and that’s likely to slow the economy down over time.
On top of all that, Nvidia stock is still selling for nearly 50 times trailing earnings, despite the fact that it’s only expected to grow earnings about 21% annually over the next five years.
Nvidia stock still isn’t cheap yet. There’s still plenty of room for it to fall.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NetApp and Nvidia. The Motley Fool has a disclosure policy. –

What happened

On Tuesday morning, stock markets turned from red to green. After three days of non-stop selling, the S&P 500 is up a modest 0.2% and the tech-heavy Nasdaq is gaining back 0.4%.

Individual tech stocks are doing even better. Semiconductor-star Nvidia (NASDAQ: NVDA) sold off along with all the other tech stocks last week as investors worried about rising inflation, rising interest rates, depressed investor confidence — and a potential crash in demand for computer graphics chips. But this morning, Nvidia shares are up a solid 2.4% as of 11 a.m. ET.

Image source: Getty Images.

So what

What sparked Nvidia’s rally today? The most on-point news on Nvidia this morning is that cloud-based data storage company NetApp (NASDAQ: NTAP) is teaming up with Nvidia to work on artificial-intelligence data centers. But the companies’ press release on this collaboration doesn’t contain a lot of detail on the size of this project or what it means for Nvidia (or for NetApp, either) in terms of potential revenues or the impact on growth rates. 

While this is an incremental positive for both stocks, I don’t see it as the kind of news that would justify investors making a U-turn on Nvidia stock and suddenly buying after three straight days of selling.

Now what

What we’re seeing here today is a relief rally, plain and simple — investors buying on the realization that the stock market turned green today and the sell-off may be at an end. Problem is, it may not be at an end.

Consider this: None of the factors that sparked the sell-off last week has actually changed. Inflation is still running hot at 8.5%. The Fed is still determined to contain that inflation.

It may have promised not to raise interest rates 0.75% at its next meeting, but it still did raise interest rates 0.5% last week — the biggest interest rate hike in more than 20 years. (And it appears intent upon doing at least two more similarly sized hikes later this year). Higher interest rates make everything from corporate borrowing to credit card bills more expensive, and that’s likely to slow the economy down over time.

On top of all that, Nvidia stock is still selling for nearly 50 times trailing earnings, despite the fact that it’s only expected to grow earnings about 21% annually over the next five years.

Nvidia stock still isn’t cheap yet. There’s still plenty of room for it to fall.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NetApp and Nvidia. The Motley Fool has a disclosure policy.

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