No Follow-Through, and Nvidia Gets Cheaper

Résumé détaillé

Analysts expect Nvidia to earn $9.29 a share this fiscal year and $15.81 next fiscal year, a 70% increase. At $167, the stock trades at about 18 times this year’s earnings,…

A late bounce repaired some of the damage, but rates and Nvidia killed Monday’s positioning action.

A late bounce undid some of the market damage on Tuesday. Breadth improved to about 36% positive from its worst levels, and bonds bounced off their lows. The Invesco QQQ Trust (QQQ) and the iShares Russell 2000 ETF (IWM) both finished down about 0.6%.

Interest rates and Nvidia (NVDA) were the catalysts. The consumer price index came in hot, and Fed Governor Christopher Waller said a half-point rate hike in December should be considered if core inflation keeps running at its current pace. Buyers shrugged that off on Tuesday morning, but it weighed on the market as the day went on. Then Nvidia dropped another 6%.

The bigger issue is what I discussed on Monday. That rally was largely driven by poor positioning. Investors who were caught out of position scrambled back in, and short sellers covered. That kind of buying doesn’t make for good follow-through, because once the scramble is over, the buyers are gone. That’s what we saw on Tuesday.

This is typical volatility in a struggling market. Big up days are followed by big down days, breadth swings from one extreme to the other, and nothing holds long enough for charts to develop. Investor’s Business Daily is still waiting for a follow-through day, and the earliest one can come is Wednesday. With rates and Nvidia both pressuring sentiment, I wouldn’t count on it unless there is some surprisingly positive news flow.

Nvidia has fallen from about $240 to $167 in a little more than a month, a 30% decline in the stock that has been the face of the AI boom. It hurt sentiment again on Tuesday, but you have to wonder whether the selling is overdone.

There are reasons for doubt. Hyperscaler spending is Nvidia’s revenue, and investors are rewarding the hyperscalers for spending less. The smaller AI cloud companies that have been big buyers of Nvidia’s chips are running into a capital crunch.

The business itself is still strong.

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