Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

Copyright Notice

Everything that appears on this blog is the copyrighted property of somebody. Often, but not always, that somebody is me. For things that are not mine, I either have obtained permission, or claim fair use. Feel free to quote me, but attribute, please. My photos and poetry are dear to my heart, and may not be used without permission. Ditto, my other intellectual property, such as charts and graphs. I'm probably willing to share. Let's talk. Violators will be damned for all eternity to the circle of hell populated by Rosanne Barr, Mrs Miller [look her up], and trombonists who are unable play in tune. You cannot possibly imagine the agony. If you have a question, email me: jazzbumpa@gmail.com. I'll answer when I feel like it. Cheers!

Saturday, August 26, 2023

Some Thought on Nvidia

 This week, NVDA wildly exceeded revenue guidance, posting $13.5 Billion vs the expected $11 Billion, an increase of 101% over the same quarter last year.  Impressive - no?

On Thursday, the stock hit a new intraday hi of 502.66 just after the opening, but then fell the rest of the day, losing 31 points and closing at 471.63, a fraction above the day's lo.  [Graph 1, From Yahoo Finance.]

Graph 1 NVDA 8/23 to 8/25

The most recent new closing high was 474.94 on 7/18, more than a month ago.  

Here's a hard and unpleasant fact: even with this earnings blow out, the P/E ratio is 110.89.  Will you scoff at me if I suggest that this is not sustainable?  And the lack of a new closing high after this earnings report is not a good sign.  Further, Friday's close was off 11.45 points, or 2.43%.  I wonder - at this level, are there many buyers left?

Let's take a look from a longer view. Graph 2 shows daily closings from the middle of last year, along with trend lines and exponential moving averages.  [Data source - Yahoo Finance]

Graph 2  NVDA Closings from mid 2022.

Like just about everything else, NVDA dropped dramatically through the first 9 months of 2022.  From the hi of 336.71 on 11/29/21 it slumped to a low of 112.27 on 10/14/22, a staggering loss of 66.36%. Then, at the end of the year, there was a higher lo, suggesting that the drop might be complete.  This became an even stronger suggestion when the price crossed over the descending trend line [in violet] a few weeks later.  From there it was up, up and away until the recent all time highs.

 On 5/24/23 the stock rose 24.4% in a single day, and kept climbing for almost 2 more months.  This leap carried the price far above the green up-slanting trend line, and this is what irrational exuberance looks like.

Graph 3 is a look at exponential moving averages of daily closings, from 5 day to 233 day periods.

Graph 3 Exponential Moving Averages 

The thin blue line is the 5 day EMA.  It is more volatile and quicker moving than the longer EMAs.  After its low of 116.83 on 10/14/22 the next intermediate low was 145.29 on 1/04/23. This also suggests that the bottom was in.  This was confirmed by the cluster of long EMA lines in Early February.  From Feb 1 to 21 the stock bounced around in the 210 to 220 range while all the EMA's continued rising. 

All the long EMAs [55 to 233 day] continued rising right through 8/25/23, but the shorter ones have faltered.  The 5 EMA line hit 462.9 on 7/19 then topped at 463 on 8/01, indicated on Graph 3 with the red horizontal line.  It got close again on 8/24 and 8/25, but stalled under 462. 

This looks to me like topping action.  If 463 turns out to be a hard resistance line, then NVDA is going to falter.  Right now it's hovering in tulip bulb territory, and a crash could be brutal.

If the P/E were to revert to a much more reasonable level of 30, for instance, the price would have to drop to about 125, for a loss of 73 percent from the 8/25 close of 460.18.

For comparison, Alphabet [GOOG] has a P/E of 27.57; Apple [APPL] is at 29.92; and Microsoft [MSFT] is at 32.46.

There's a lot of "if" here, and I don't have a crystal ball.  The recent stall might be a pause to consolidate before the stock price doubles again. The market can stay irrational longer than most of us can stay solvent.  NVDA ia a great company; but at these prices, I don't think it's a great stock. 


Here is an interesting insight, for what its worth.



No comments: