The equity markets are probably wrong about NVDA.

music selection:  “Last Nite” — The Strokes

One of my favorite investing themes is to scan the market for stocks that have fallen 50% or more.  Usually, the market is pretty efficient about pricing such things.  But sometimes, emotion over powers logic.  A great way to tell that the market has over reacted to bad news is to consult the “smart money”.  By which I mean check what is happening to the company’s bonds.  If the bonds continue to trade close to par or even rally, it is an almost sure bet that everything at the company is just fine.

Shares of Nvidia (NVDA) have declined quite a lot on a bad quarter and some weak guidance.  But the company is still a chip powerhouse.  Their products perform a critical and high demand task.  There will be more gamers, more video, more 3D imaging, and more crypto mining in the future.  This much is certain.  And the company commands a solid 80%+ market share in the space.  No one else represents a credible threat.

Peak to trough, NVDA fell a little over 57%.  At the same time, the company’s two outstanding bond issues have held firm.  Even better, an uptrend is now in place.  I have high conviction in the thesis that shares will double as is common in this scenario over the next 18 to 24 months.  Thus, I have bought shares at 159.06


Action to take: Devour shares of NVDA up to 165.  Protect your delicate lizard backside with with a 35% trailing stop loss.  Sell half when you are up 100%.


Devour your prey raptors!

Bond Market Signals Opportunity in Nvidia (NVDA)

Never miss another opportunity to devour prey!

5 thoughts on “Bond Market Signals Opportunity in Nvidia (NVDA)

  • February 24, 2019 at 6:48 am
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    I’m long 0.5% of my Portfolio at 146 and plan to hold them until it hits 290 again

    Good luck!

    Reply
  • February 25, 2019 at 3:41 pm
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    The big selloff was a return to normalcy for NVDA after the market realized that the recent performance of the company was based on the crypto-currency bubble. There’s still a bright future for NVDA, but it might be a long time before the company is valued at $200B market cap again.

    Graphics cards (nVidia’s main product) had been priced artificially high because the cryptobubble. A card with an MSRP of $200 was selling used for $400 on eBay, which is particularly strange given that computer hardware normally declines in value fairly quickly. This had been going on for a couple of years, but has completely ended in the last 12 months. RAM and SSD prices were similarly inflated; look at MU and NVDA stock prices in an overlaid chart to see the same trend with a company heavily exposed (NVDA) and lightly exposed (MU) to the cryptobubble.

    The bond market is of course not freaking out because nVidia is still a profitable company with a bright future. They’re the leader in parallel computing and are well positioned for self-driving cars, AI, and all sorts of other hot trends. The problem is that their main money maker is still graphics chips for gaming. In the long run, the company will probably do fine, but gaming graphics cards continue to get cheaper and the company is facing the same manufacturing challenges (even though they don’t own fabs) of making transistors smaller and more efficient, which has already, and will continue to slow down the pace of innovation in their chips. This makes it harder for them to stay ahead of their competitors (AMD, and soon Intel).

    NVDA isn’t a bad pick, but I wouldn’t expect it to return to its previous highs any time soon. If anything there’s likely more short term pain before long term growth. Personally, I’m in MU. It’s going to experience short term pain from NAND and DRAM price decreases, but it’s still exposed to the same long term growth as nVidia because data centers and self driving cars need enormous amounts of NAND and DRAM, respectively.

    Reply
  • February 25, 2019 at 6:50 pm
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    You didn’t buy it by selling a put?

    Reply
    • February 25, 2019 at 7:28 pm
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      In this case, I bought the underlying shares. I wanted to be certain I held the underlying and could have missed out if shares rallied early. Also, I only wanted to commit 5k in capital to something that isn’t going to be delivering cash on cash return during the holding period. That only covers 31 shares. Not enough for a 100 share contract!

      Reply
      • February 25, 2019 at 10:48 pm
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        Gotcha. We’ve all been there. I don’t play options on AMZN either.

        Reply

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