Nvidia (NASDAQ:NVDA) stock was the poster child for the hottest trends to hit the digital era. It was the key player in every new sector that opened — big data, mobility, the internet of things, cloud computing, gaming, cryptocurrencies, you name it.
NVDA stock had the opportunity to exploit its niche in graphics processing units (GPUs) when processing power and mobile platforms took off. Big players like Intel Corp (NASDAQ:INTC) aren’t especially focused on the niche and are so big and diversified it didn’t look like high-end GPUs was really a business worth pursuing.
And for a while, NVDA was going like gangbusters. It started with gaming but then moved into new businesses like big data and cloud computing. Visualizing data was the new hot thing and few companies did it better than NVDA.
Growing Issues for NVDA Stock
The thing is, Nvidia GPUs can get expensive. Many of its earliest clients were research facilities that used their GPUs for everything from mapping the stars to building molecules. They were fairly price elastic. They needed specific tools and were willing to pay what was necessary to get them.
That kind of client is very helpful since once you’re building state-of-the-art equipment, it’s easy to de-tune it for various other markets. The best analogy is a car makers that build cars for the racing circuit. Few people will ever drive those models, but most of the rest of their product lines benefit from the information derived from those race cars.
Most of the market swallowed the hook on Nvidia stock when cryptocurrencies took off in 2017 and 2108. To no one’s surprise, the best mining GPUs were NVDA’s. And sales took off, as did the stock.
While I have been bullish on the stock for many years, my Portfolio Grader now ranks it as a D, or a sell. Part of that grade is the momentum that took it nearly to $300 a share is now reversing. NVDA stock now sits more than 50% below its highs.
But beyond momentum, its sales are slowing. And there was plenty of irrational exuberance in long run Nvidia had. Both contributed significantly to its current state.
Also, Advanced Micro Devices (NASDAQ:AMD), which has been a competitor of Nvidia, recently announced good earnings where NVDA stock announced bad earnings. This had made AMD the new shiny object in the space.
There’s all sorts of chatter now about how AMD is going to be the next Nvidia. Don’t get too excited yet.
First, AMD has $25 billion market cap compared to NVDA’s $88 billion market cap (and that’s after Nvidia stock’s selloff). Second, AMD is currently trading at a trailing price-to-earnings ratio of 78. NVDA’s P/E is 20.
The point is, while NVDA stock’s momentum is heading in the wrong direction right now, it doesn’t make AMD a buy. This sector is hurting for reasons beyond the quality of the companies. Maybe just wait and look to other sectors that have better uptrends now.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.