Nvidia melted into America’s ridiculous heat wave on Monday, when the shares suffered a third straight daily decline.
Jump off the nearest roof, I know. When you hit the scorching-hot pavement, your viscera will sizzle like a fried egg. Sssssssss.
When companies get as large as Nvidia, small-ish moves — pedestrian pullbacks — are huge in market-cap terms.
Nvidia’s three-day skid put the shares into a technical correction, but more to the point, the company’s worth ~$400 billion less than it was just three sessions ago. Allegedly. Which is to say according to “efficient” markets.
In truth, nobody knows what Nvidia’s worth, including management. As Bloomberg put it in an entertaining piece, “no one can figure out what the chipmaker’s revenues are actually going to be.” That, in turn, makes it hard to know what the company’s profits are going to be.
Remember: Bottom-up analysts don’t actually do a lot of analyzing. I don’t want to be derisive. (Actually I do, but let’s pretend.) They crunch a lot of numbers and they often look like they’re working, but at the end of the day, they’re going on what the companies in their coverage universe say about the outlook.
Yes, management sometimes sets a low bar so they can clear it, but the market imposes a de facto limit on strategic sandbagging: If you guide too low, your shares will plunge. That’s particularly the case when expectations are as high as they are with Nvidia. So, I don’t think it’s sandbagging. I think the company, for all Jensen Huang’s splashy claims, is still a little surprised by its own success.
JonesTrading’s Mike O’Rourke captured the grandiosity of the moment. “Nvidia is in the midst of what may be the most historic fundamental organic growth outburst ever experienced by a mega-cap company,” he remarked, before flagging what’s now a monumental valuation premium for the cap-weighted index (below).
“This relationship is in prime position to reverse and have the equal-weight outperform,” O’Rourke said. “We expect a second half of 2024 that begins to treat the average stock better, while the S&P 500 itself marks time or loses ground.”
If you’re wondering how dominant Nvidia is on a global scale, the answer’s “very.” Very dominant.
The figure below, from SocGen’s Andrew Lapthorne, gives you a sense of things.
“The MSCI World’s total return this year is a respectable 11.9%, but 300bps comes from this stock alone,” Lapthorne wrote Monday. “Quite an incredible performance considering this index contains almost 1,500 of the world’s biggest companies.”
Incredible indeed. And incredibly disconcerting on days when “this stock” is selling off.
As Lapthorne went on to note, on an equal-weighted basis the MSCI World has delivered a total return of 2.9% this year, just barely better than cash.
Coming quickly full circle, Nvidia’s $430 billion market cap loss from Thursday through Monday was the largest three-session value destruction event in US history.
Yesterday, I sold 90% of my Nvidia position and bought SPY. I now have just under 50% of my portfolio in SPY.
My next “swing for the fences” will be in nuclear.
Now we know who was responsible for Nvidia’s $208 billion one-day rout.
Haha. I sold at a 410.59% profit, so for this “Forrest Gump” style investor- I decided to move to the safety of SPY (another haha). I
I have one additional stock that I would like to pare down, but it is in a taxable account, so that makes it harder for me to do.
I know the feeling about working around taxes. At 80 everything I have is taxable. Some years ago I put together a little DIY fund of eight pharma stocks. My biggest purchase was 1000 shares of LLY at 30. It also proved to be the best. I got nervous when it hit 400 and I sold a bit to trim the position. I started giving it away to charities when it hit 500. This year I gave my daughter and her husband some to tide them over while they both are job seeking. I gave them some other stuff with unrealized losses to erase their gains, their only income this year, in all likelihood. The market is tough for senior techy managers. Lilly hit 900 today and I still have some left, 8% of what I started with, worth more than twice what I paid for the whole position initially. People who ride these hot stocks up may like them, but some folks who held to the top have tough decisions. I still have six of the eight pharmas I started with. ABT more is slated for donation this year, lousy dividend.
Awesome story, Mr Lucky. 🙂
I know there was a breakthrough in nuclear fusion technology about a year ago. I figured nuclear fusion would crowd out fission, solar and wind as the source of power over the next 10 years. I did some research and all nuclear fusion tech was in private hands. The best I could find for investing was that you need lithium to make nuclear fusion to work. I bought stock in a bunch of lithium producers and lost a bundle.
I bought SMR last year after it tanked- but I had no conviction and sold it at about what I paid for it.