In recent weeks, I’ve received “ominous” alerts about Nvidia Corporation (NASDAQ:NVDA). After enjoying a standout year in 2017, NVDA stock hasn’t looked too hot since its third quarter earnings report. As a result, the NVDA news cycle filled quickly with warnings about a potential bearish reversal. However, I think this is a case of unnecessary drama.
For one thing, I can’t help wondering, what really is the problem here?
Year-to-date, the NVDA stock price is up 83.5%, even with the 10% drop from Nov. 24. I know many companies that would kill for this kind of “underperformance.” Besides, hardened NVDA optimists recognize that nothing goes up forever. Corrections are a healthy part of any long-term, robust bull market.
Furthermore, occasionally sharp downswings is nothing new for NVDA stock. For instance, up until late spring, Nvidia looked like it was going to incur a losing year in 2017. However, a strong earnings beat in Q1 pleasantly surprised Wall Street, leading to a gap-up move. The bulls took over, taking Nvidia shares to an all-time record high.
We should also note that the chart action for the NVDA stock price isn’t dissimilar to its semiconductor peers. Micron Technology, Inc. (NASDAQ:MU) suffered sharp volatility in late November, and its shares are clawing back from those losses. Intel Corporation (NASDAQ:INTC) took an extended slide in early November, and it has more or less recovered.
We’re not dealing with a problem exclusive to Nvidia. More importantly, the tech company has so many current businesses and future prospects that shunning NVDA stock would be unwise.
Robust Opportunities for NVDA Stock
No discussion about Nvida is complete without mentioning its graphics card business, which it dominates. You can find plenty of stories about its latest and greatest hardware. If you’re an avid gamer, the information may tickle your fancy. If not, don’t worry: tech specs aren’t what drives the NVDA stock price.
What you really need to know is that video gaming has crossed over from nerd culture into pop culture. And I’m not just referring to the fact that video gamers can now go on dates with real women. Tournaments, conventions, and sports broadcasters are clamoring for a piece of the pie.
In October, I mentioned GameStop Corp. (NYSE:GME) as a must-buy dividend stock. Part of my reasoning was that video games have become so popular, we now have discussions about their inclusion as an Olympic sport! While recent NVDA news focuses on the negative price action, we should also consider that gaming is a cash cow.
But what really makes Nvidia stand out is its longer-term vision. While it could get complacent and focus exclusively on graphics cards, it’s branching out into exciting technologies. As InvestorPlace contributor Chris Lau rightfully asserts, the company has “years of growth ahead” in the artificial intelligence game. Lau writes:
“The chip giant also has a moat in this sector, thanks to its early entry and its willingness to spend in R&D to keep ahead of its competitors. Nvidia has deep pockets too, and may easily raise its spending to stay ahead.”
His latter point is particularly important because NVDA stock isn’t merely a sexy tech investment. Management is very disciplined, allowing it to take advantage of opportunities not afforded to others.
Nvidia Kept Its Powder Dry
I take a lot of heat for not loving Advanced Micro Devices, Inc. (NASDAQ:AMD). But when you stack up AMD against Nvidia, you can see why.
Fundamentally, NVDA news centers on what it can accomplish in the next five to ten years. AMD news, on the other hand, is often weighed down by whether or not it can keep plugging away. That’s a day-and-night difference. It also explains why the NVDA stock price is where it is, and why AMD trades so chaoticly.
Moving forward, financially strapped or otherwise vulnerable organizations will have to make hard choices: stick with what works or make aggressive (and painful) investments for the future. Nvidia doesn’t have to make those choices because it has kept its nose clean over the years.
I understand that the recent selloffs for NVDA stock are a turnoff for some newcomers. However, this is more than likely profitable traders taking some money off the table. It has no real bearing on the company’s longer-term trajectory, which should be quite positive.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
