- Though a relevant powerhouse, Nvidia (NVDA) stock is again suffering from macro headwinds
- NVDA stock is essentially back in early 2021, both benefitting and suffering from a paradigm shift
- This time, though, investors should be a bit more cautious
A popular and extremely relevant semiconductor firm, Nvidia (NASDAQ:NVDA) stock is again finding itself in a familiar situation, stuck between a rock and a hard place. Looking at the print, NVDA stock is down over 29% on year-to-date basis through the close of the April 14 session. While macro headwinds have affected its valuation, the underlying firm can still benefit from the challenges, making it a confusing investment.
Arguably, the pessimistic side is winning over most market participants. According to R.W. Baird analyst Tristan Gerra, “We believe order cancellations recently started in consumer GPUs, driven by excess inventories, a slowdown in consumer demand (reflected by an ongoing reduction in graphic cards pricing), slowdown in PC demand, and the Russia embargo.” Unfortunately, NVDA stock is suffering fundamental problems at a time of rising prices.
Further, Baird notes that semiconductor demand may have fallen in China, which would be problematic. It’s also credible, considering that the Chinese government shutdown Shanghai and other cities due to its no-nonsense approach to the coronavirus pandemic. That could have ripple effects for NVDA stock and similar technology-based investments.
Still, the other side of the coin is that because of the unprecedented crises at hand, stores of value like cryptocurrencies have also experienced robust demand. Of course, this dynamic benefits NVDA stock as the semiconductor firm specializes in GPUs that facilitate crypto-mining endeavors.
NVDA Stock and the Time Machine Effect
If the above narrative sounds familiar, you’re absolutely correct. In early 2021, the Wall Street Journal noted that NVDA stock faced a vexing conundrum.
As you’ll recall, the crypto sector came roaring back to life in late 2020, leading to some heady trading in January, eventually culminating in the spring season. As WSJ’s Dan Gallagher stated, the good news is that Nvidia “won’t have any problem selling its new gaming chips. The bad news might be who exactly gets their hands on them.”
Thus began the first round of the Catch-22 plotline for NVDA stock. The circumstances that caused its supply chain woes and thus the inability to serve all demand sources is also the same set of dynamics that contributed to the reason why Nvidia was suddenly in such high demand.
On the cusp of 2021’s remarkable crypto rally, Nvidia suffered from the global chip shortage — a side effect of the Covid-19 crisis. At the same time, Covid-19 caused myriad unusual and unprecedented circumstances that sparked life into cryptos and thus demand for Nvidia GPUs.
Fast forward to this year and it’s a similar theme.
Deja Vu for Nvidia
This time around, we have a subsegment of the original crisis that makes both NVDA stock risky and compelling. As Gerra and other analysts have pointed out, Nvidia has been hit with the ugly stick of macro headwinds: ongoing supply chain issues, a geopolitical flashpoint and demand erosion concerns.
Obviously, the one factor that’s relevant or related to these headwinds is inflation. Logically, a decline of purchasing power is anathema to consumer discretionary services like semiconductors because people tend to clamp down on their spending. Further, it’s much easier to skimp out on luxuries as opposed to essential goods like food and water.
However, inflation is also the core fundamental catalyst for cryptos. Now, let me back up for a moment and acknowledge that virtual currencies are still deflated from their highs. Nevertheless, the perceived loss of purchasing power in the future means that stores of value — whether the analog or digital kind — will at least gain consideration and interest from worried investors.
On a side note, Russia’s invasion of Ukraine highlights the importance of decentralized currencies as a mechanism to protect and transfer wealth. That’s another positive for cryptos, which is then positive for NVDA stock.
But Which Circumstance Will Win Out?
While Nvidia does benefit from an inflationary backdrop, I think the main issue this time around — as opposed to 2021 — is that the benefit is a downwind benefit. On the other hand, the bearish pressures against NVDA stock are “upwind” impacts, meaning that they directly affect many of Nvidia’s core consumers.
Last year, the economy was simply more stable. Sure, we still had inflation but the global community was focused on recovering from Covid-19. Today, world leaders are focused on staving off recession risks, supply chain woes and outright nuclear war. Oh yeah, Covid-19 is still around.
Given the mountainous challenges, investors need to be extremely careful with NVDA stock. Sure, it has positives to its name, but the negatives just might outweigh them.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.