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The weight of high expectations is often a heavy burden to bear.
In life, if you are an excellent worker, you are expected to show up as such every day. Having a bad day? That is not allowed, so go dump that crap somewhere else.
Sure, some college professor who gave an inspiring speech on leadership at a TED talk 10 years ago and now appears in one-minute clips on your Instagram feed might suggest that it’s okay to have bad days at work, even if you’re a winner.
Trust me, it’s not, and don’t let that social clip make you think otherwise.
This same philosophy could be applied to the biggest stock on the stock market: Nvidia (NVDA).
I know you like that transition, Morning Brief readers! Hear from me on this top performer in the market.
Over the past week, we were reminded of how inflated expectations are for Nvidia and how the stock has entered dangerous waters that many traders who were late to the Nvidia game have never navigated before.
On June 18, Nvidia’s market capitalization reached a staggering $3.34 trillion, eclipsing Microsoft (MSFT) and becoming the most valuable company in the world. Over the next three business days, with nothing known about the company’s fundamentals, the company’s market capitalization plummeted by $430 billion.
To put this into perspective, Coca-Cola (KO) has a market cap of $275 billion.
Some people I spoke to told me that people were taking profits from Nvidia heading into the second half of the year. Other people I spoke to for my “Opening Bid” podcast told me that there are rumors about new competitors entering Nvidia’s territory and that the company may not be as absurdly dominant in the next five years as many anticipate.
That’s all fair, but it reinforces the view that the stock is prone to sharp, unexpected swings in negative sentiment because it’s up 3,000% in five years.
But dig deeper and you can see just how intense expectations for Nvidia have become.
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Nvidia stock now trades at about 21 times (very high) forward sales, up from 12 times (also high) two months ago, according to research from Creative Planning chief market strategist Charlie Bilello. This is a significant premium over Microsoft at 12x and Apple (AAPL) at 8x, two tech titans that are performing very well on a fundamental basis and are likely to keep moving higher for years to come.
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Nvidia stock recently traded about 100% above its 200-day moving average, noted BTIG chief market technician Jonathan Krinsky. Since 1990, the widest spread any U.S. company has ever traded above its 200-day moving average while it was the world’s largest company was 80% by Cisco (CSCO) in March 2000, marking its historical maximum. “In other words, Nvidia is in a league of its own,” Krinsky said.
It clearly seems that way.
Similar expectations applied to chipmaker Micron (MU) when it reported its results this week. The stock was criticized due to “in-line” guidance that failed to meet crazy expectations for anything related to AI demand.
And I stress that it’s crazy: On Monday, several sell-side analysts raised their estimates and price targets for Micron ahead of the report. As someone who used to lead a team of equity researchers, I can tell you that this action before an earnings report is not the norm.
It reeked of analysts believing too much in the hype and expecting a giant one-day pop in stocks.
“When you get a reaction like Micron, where the numbers should be good enough to prevent a sell-off, much less stimulate a rally, that’s a bad sign: an indication that expectations are so high that they can’t. can be overcome,” Interactive Brokers chief strategist Steve Sosnick told me.
Others disagree with my assessment that Nvidia’s price is perfect, and that’s totally fine. I don’t have a monopoly on good ideas!
“But for medium- and long-term investors, the story still holds when we look at the extent to which capacity is booked and prices are firming,” Tematica Research co-founder and chief investment officer Chris Versace said.
We can all agree on one thing: Nvidia is one of the best-performing companies on the market and you won’t be allowed to take a day off if you catch a cold.
Speaking of expensive tech stocks, Amazon (AMZN) stock is up 55% over the past year. However, questions about its culture persist. WSJ journalist Dana Mattioli discussed her explosive new book “The Everything War: Amazon’s Ruthless Quest to Own the World and Remake Corporate Power” on an episode of the “Opening Bid” podcast. Listen below.
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