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- I am correcting my last ‘Sell’ view on NVIDIA; despite Q2 FY25’s result and guidance playing out as per expectations, the stock has not moved down materially as expected.
- Capex spending expectations from NVIDIA’s top customers such as MSFT, META, AMZN, GOOGL and TSLA are broadly stable, unlike a few months ago when there were broad downward revisions.
- Chinese players are reducing reliance on NVIDIA by developing their own chips in response to government’s moves to reduce US chip reliance and save costs.
- The recent correction in NVDA stock is driven by valuation multiple contraction as earnings growth expectations are still present. I expect this contraction to revert given easing of rates.
- Relative technicals of NVDA vs SPX point to a pause amid a broader uptrend, suggesting a period of ranging action ahead (i.e. a time correction).
Performance Assessment
After merely in-line guidance for Q3, I thought NVIDIA (NASDAQ:NVDA) would start to sell off. This was partly because I noticed a similar setup for Micron (MU) had led to an eventual 30% fall after its Q3 results. However, what I anticipated has not panned out as NVDA stock has slightly outperformed the market, rebounding after a brief correction:
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