Last week, the Nvidia (NASDAQ:NVDA) share price fell 8.5%. Even though it’s still up 159% over the past year, the tree shake from last week has caused some panic about whether this is the start of a larger correction lower in the stock. I’ve seen valid arguments for both sides, and here’s my take.
Having a wobble
A month ago, I wrote about the company and several factors that I believed could derail the incredible rally. One of them was the fact that if the broader market had a crash or even just a sharp move lower, Nvidia would likely suffer. This is because the market-cap‘s so large that any negative sentiment from investors about the overall market is going to drag Nvidia shares down with it. Last week, this scenario played out.
Another point that helped to trigger the fall was geopolitics about the semiconductor sector. Former President Trump made comments about Taiwan taking away business from the US. The Biden administration was also reported to be looking at putting stricter controls of chip manufacturing tech to China.
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Given this is such a profitable sector for many countries around the world (and the fact that Nvidia trades globally), this chatter had a negative impact on the share price.
The situation from here
I think the next month’s crucial for Nvidia shares, to assess if this really could be the start of a bubble bursting. Over the next couple of weeks we get a host of mega-cap US stocks reporting the latest quarterly earnings. If these disappoint and more gloomy investor sentiment creeps in, I think Nvidia shares could fall further.
On the other hand, if earnings are strong, this could help fuel a recover in the share price, back to 52-week highs.
The other key event is Nvidia’s own quarterly earnings release, which is scheduled for pretty much this time next month. In the past, the firm has always found a way to beat even the lofty benchmarks of revenue and profit expectations. This has helped to fuel the insane rally we’ve seen. It’s impossible for me to predict right now what will happen. But I expect high volatility in the immediate aftermath.
The long-term view
Even if the events over the next month are disappointing and we don’t hit new highs this year for the stock price, I don’t think this is the end of Nvidia completely.
After all, artificial intelligence (AI) and the role of semiconductors and related products are undoubtedly the hottest sectors for the future. So even if the stock tumbles further in the next month, I just see this as a blip that will then recover in years to come.
From that angle, I’ve got the stock on my watchlist. If it does fall by a considerable amount, I’m going to snap it up and buy.
