Stock Story -
What Happened: Shares of leading designer of graphics chips Nvidia (NASDAQ:NVDA) fell 6.1% in the morning session after Bloomberg reported that the Biden Administration is planning to implement tighter trade restrictions if semiconductor companies continue granting China access to technologies made in the United States. The report follows ongoing trade tensions between both countries, which might raise uncertainty about market dynamics in the semiconductor segment heading into the new earnings season.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Nvidia? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Nvidia's shares are very volatile and over the last year have had 14 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 6 days ago, when the stock dropped 5.8% as investors seemed to be rotating out of large-cap tech stocks that have been winners year-to-date. We observed that the Russell 2000 Index rose 3%, suggesting that investors could be rotating into smaller stocks. The rotation could have been sparked by the inflation report by the Bureau of Labor Statistics. It revealed that CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of June 2024 came in better than expected at 3% year on year (the lowest level in more than three years).
The recent inflation prints supported the argument that the Fed will start cutting rates this year as the headline figures moved closer to the 2% target.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Nvidia is up 143% since the beginning of the year, but at $116.94 per share it is still trading 13.8% below its 52-week high of $135.58 from June 2024. Investors who bought $1,000 worth of Nvidia's shares 5 years ago would now be looking at an investment worth $27,561.
