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!