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Why Nvidia Stock Is Too Far Ahead of Itself

A ski jumper who gets out ahead of their skis is headed for a bad fall. Her weight distribution, if maintained until she lands, could send her tumbling. Stocks like Nvidia (NASDAQ:NVDA) get out ahead of their skis all the time. Traders look for indications like this to trim positions, figuring they can get in later. Going into earnings Nov. 14, Nvidia stock looks to be in this position.

The consensus earnings estimate is $1.58 per share, on $2.9 billion of revenue. The “whisper number” for Nvidia stock is even higher, $1.64. In just the last month, the shares are up 11.4%, adding nearly $13 billion to the market cap.

It looks overvalued. That third-quarter print should be crucial.

Should you care about NVDA stock?

Where You Stand

Where you stand on a stock like NVDA depends a lot on where you sit in life.

A young investor can take risks, even some heavy losses, knowing time is on their side. An older investor may not have that luxury. A retired investor is seeking income, not growth.

If you’re under 50, don’t worry about Nvidia stock. The shares were cut 50% late in 2018, they’re only halfway back, and the graphics processing business will define the next decade. You’ll be fine.

If you’re an income investor, what were you doing here in the first place? Nvidia stock does have a dividend, 16 cents per share, but that’s a yield of just 0.32%. Even at its December lows, it was 0.48%. Sell.

The Nervous Freddies should be those who, like me, are approaching retirement age and looking to cash out. That 2018 fall was a horror show. Why did we stay in? Now that we’re just getting even, the stock could be going down again — oh no!

That’s where the selling pressure will be coming from, especially if NVDA misses. But the long-term outlook is quite different.

Remember the Dog

Jim Cramer briefly nicknamed a dog Nvidia because, before the fall, it was rising sharply on the strength of gaming PCs and bitcoin mining. The fall was due to the collapse of the latter business, and the subsequent inventory recession. That’s in the past now.

The trade war isn’t helping. Nvidia’s acquisition of Israeli switch fabric maker Mellanox (NASDAQ:MLNX) is being slow-walked as a result. Any thaw could send the stock higher.

Both artificial intelligence and self-driving cars have their critics, but both are coming.

The future is in Hangzhou, home of Alibaba Group Holding (NASDAQ:BABA). China’s government is all-in on AI, Blade Runner dystopia and all. (The first movie was set in last week.)

The Trump Administration may want to blacklist AI startups but they’re just delaying the inevitable, assuring that more of the resulting intellectual property goes east.

Nvidia should get a big hunk of this business. Its newest chips, when running on 5G networks, provide the low-latency such applications need to work. No one is frightened of Intel (NASDAQ:INTC) any more.

The Bottom Line on Nvidia Stock

There are going to be hiccups. Tech stocks are volatile. Maybe you can find a lower entry point to Nvidia stock after earnings.

But in general, the future is so bright for this company CEO Huang needs to wear shades. Good thing they go great with the leather jackets he likes to wear at trade shows.

When a stock is rising going into earnings, especially if estimates are being taken up, there is a risk the bulls will overshoot. There is that “getting ahead of the skis” thing.

But if you’re young and can wait, just keep buying NVDA stock. If you’re old and need income, you shouldn’t have been here in the first place. If you’re nervous, it’s a coin flip.

I’m staying. Get the popcorn.

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