Nvidia Corp. NVDA 0.00%↑ made history Tuesday … just not the history a company wants to make.
It set a record for the single-biggest, single-day valuation loss for a U.S company.
A key catalyst looked to be the U.S. Justice Department’s (DOJ) probe of Nvidia, and whether it’s using its dominance in AI chips to keep customers from using — or switching to — semiconductors made by rivals. The government’s enforcement unit — which previously sent out formal questionnaires — has now issued actual subpoenas to Nvidia and other companies, another clear step down the path toward a formal antitrust complaint.
The Justice Department news likely exacerbated the existing “hangover” from Nvidia’s latest earnings report. Those numbers, released before the long Labor Day weekend, were stellar on their face — but were viewed as “disappointing” by the set-the-bar high Wall Street crowd.
In the short term — the next few months — these factors should make for a choppy ride:
September is historically a rough month for stocks — stats from Fisher Investments show it is the only month of the year with an average loss over the past 98 years — which means investors are nervous to start with. Against an already-agitated backdrop, any less-than-perfect developments are viewed as a downer and can generate overreactions.
Boosting that uncertainty even more is the looming (Sept. 16-17) meeting for Federal Reserve policymakers. According to the CME FedWatch tool, there’s a 57% chance of a quarter-point rate cut. That’s hardly definitive and investors hate uncertainty; a variation — or the wrong phrasing in the commentary — could tip stocks into a spill.
Nvidia shares are already up 124% for the year, is woozy from a hangover and now sits atop a foundation of uncertainty. And those are the things that we know about — right now. They obviously can’t know what comes next. But at least for the next few months, those folks are likely to view any new developments through a negative “lens.”
All of that’s a recipe for near-term risk. But we don’t think near term. And if you can take a step back, and see the bigger story, you’ll see that there’s a “special situation” at play here.
Nvidia’s buying back $50 billion worth of shares.
That means there will be fewer shares available, which can serve as a de facto demand increase — and (ultimately) lead to a higher stock price. And don’t forget that earnings report; it (if you translate it) says some of the sales investors were disappointed in not seeing now are actually still coming … just later.
Rolled up together, that’s what I describe as a “special situation doubling as a special opportunity.” We buy businesses, not stocks. And sometimes the outlook for the business and the price of the stock are temporarily out of whack.
Out of whack like when Nvidia will be shipping billions of dollars worth of its next-generation Blackwell AI chips in the fourth quarter.
Out of whack when researcher Gartner says Nvidia will have sales of more than $84 billion this year — up from a forecast of $71 billion (as recently as May).
And out of whack when consultant McKinsey & Co. forecasts global chip sales to surge from about $600 billion in 2021 to $1 trillion by 2030.
I have more on how this is all unfolding in the issue below.
See you next time…