Nvidia (NASDAQ:NVDA) stock has recaptured most of its losses. And I can see why that would make some investors nervous.
After all, we’re in uncharted waters as the novel coronavirus impacts worldwide economic activity. Yet, as many have noted, U.S. stocks are not that far below their highs. NVDA stock is a good example: shares now are down only 6.2% from a short-lived January peak.
That kind of price action does suggest the possibility of a pullback. And that possibility is real.
To be sure, I’m bullish on stocks long-term. But I believe, as far as the economy goes, we’ll see something like a “U-shaped” recovery — not the “V-shaped” recovery many anticipate. That recovery will take some time. Stocks — particularly tech stocks like Nvidia — will see some volatility along the way.
That volatility, however, is for traders to play with. Or investors can look to sell covered calls as we do with our Cannabis Cash Weekly service. But even in volatile markets, the focus needs to be on the long term.
Taking that long view, NVDA stock remains attractive, even back near its highs. The stock isn’t as cheap as it was in March, admittedly. It may see a pullback or two along the way.
Indeed, I recommended Nvidia back in late February. Shares would selloff further in March. But, as has been the case with every selloff in Nvidia so far, investors who bought the dip are now nicely ahead — even if they were early in entering.
I’d expect that pattern to play out again. The company is going to see some short-term moves, particularly with earnings on the way later this month. But long-term investors have a chance to beat the market with what might be the world’s best chip stock.
The Mellanox Deal
A key pillar for the bull case for Nvidia is that the company is a leader in almost every market it serves. It’s the unquestioned best-in-class play in gaming, even as Advanced Micro Devices (NASDAQ:AMD) nips at its heels.
In automotive, the company is in a fierce competition with Intel (NASDAQ:INTC), among others. Tesla (NASDAQ:TSLA) is designing its own chips, but Nvidia has invested $2 billion in its products, giving it clear superiority.
The one market Nvidia lags is in data center. Intel has leading market share. But Nvidia is coming on strong. And a recent acquisition will bolster its capabilities.
Last month, Nvidia finally completed its acquisition of Mellanox Technologies. The company had to work to get the deal past antitrust regulators. And it had to outbid Intel and Xilinx (NASDAQ:XLNX), according to reports.
But the $7 billion deal is a good one. Nvidia chief executive officer Jensen Huang told CNBC last week that he has “been dreaming about this [deal].” He has good reason. As Huang put it last year, when the deal was announced: “We are focused on accelerated computing for high performance computing, and Mellanox is focused on networking and storage for high performance computing, and we have combined the two companies under one roof.”
Put another way: the leader in chips has added a leader in networking and storage to its portfolio.
And the deal means that Nvidia can go after Intel’s data center business in earnest. That’s obviously a huge, and important, market.
Intel’s production delays open an opportunity for Nvidia to take share. That can drive years of growth — and allow Nvidia to easily support what admittedly is a steep valuation.
NVDA Stock As a Pandemic Play
Meanwhile, there has been an interesting trend in the markets over the past few weeks. When stocks sold off sharply in March amid coronavirus fears, a few stocks stuck out.
Companies that were likely to benefit directly from the pandemic saw their stock prices soar. There were the vaccine and treatment plays like Moderna (NASDAQ:MRNA) or Inovio (NASDAQ:INO). Protective equipment makers Alpha Pro Tech (NYSEAMERICAN:APT) and Lakeland Industries (NASDAQ:LAKE) spiked higher (and too high).
Zoom Video Communications (NASDAQ:ZM) rallied on exploding usage. Online pet supplies retailer Chewy (NYSE:CHWY) gained.
But as investors began to process what the “new normal” looked like, less-obvious beneficiaries began to rally as well. Netflix (NASDAQ:NFLX), for instance, sold off into the March lows, but touched new all-time highs in April.
It’s worth noting that Nvidia, in its own way, is a mid- to long-term beneficiary of the changes in our behavior. The gaming business is going to benefit in the near-term, which will cement the company’s leadership in that key market.
Cloud usage is spiking — that’s part of why Amazon (NASDAQ:AMZN) has rallied so sharply — and that will accelerate growth in the data center market. And, again, Mellanox will drive a better offering from Nvidia.
Looking at it this way, the fact that NVDA stock is down 6% from its highs isn’t a problem. It’s an opportunity. That’s precisely how long-term investors should think of it.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
