by Dave Kranzler, Investment Research Dynamics:
I reloaded NVDA puts for the first time in a few months. I’m not the only one who thinks the downside risk for NVDA is enormous: “The panic selling of Nvidia shares will make history – not a matter of if, but when…US tight restrictions and mounting problems to produce BlackWell at scale and deliver it (that triggered the cancellation of many orders) weren’t “enough” for Nvidia to issue a profit warning, but thanks to @deepseek_ai many got their eyes wide open and the big scrutiny started” (@DarioCpx).
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Fred Hickey, who does superb research in the tech sector (not so much in the precious metals sector but I’ve subscribed to his newsletter on and off over the years for his tech industry insights, though not currently) had this to say about NVDA last month: “Over the past 25 years, I’ve witnessed five NVDA stock collapses of at least 55% and up to 90% and I’ve participated (via put options) in most of them. I expect a sixth relatively soon. As most know, I’ve been trading in and out of NVDA longer-term puts in recent months. However, prior to their latest report. I put the position back on in bigger size” (from Zerohedge).
NVDA’s stock has gone nowhere since early November. Hickey’s comment above was made in early December. Volume has subtly declined since mid-May. The RSI has been trending lower since early October. And the MACD has barely budged from its neutral reading since late December. The latter attribute, based on how the MACD is calculated, potentially reflects selling from funds and smart money, while retail continues to pile into the shares and calls.
With a PE ratio of 56, a forward PE ratio of 32 and a price-sales ratio of 31, NVDA is highly vulnerable to a slowdown in AI chip spending by big tech and by the start-up hyperscalers. The latter are the companies that are created to build big AI chip-driven cloud centers. I’ve read analysis from industry analysts that believe that an oversupply of AI-driven cloud capacity is on the horizon. With respect to NVDA’s revenue growth, after it reported its FY Q3 numbers I highlighted the fact that the rate of growth in NVDA’s revenues is slowing.
The slowdown in demand for AI chips may already be starting. SK Hynix cautioned when it reported its earnings last week that the chip sector could be hit by risks such as “inventory adjustments” and market uncertainties for the memory chip market as “trade protectionism grows and geopolitical risks deepen.” SK Hynix is NVDA’s main supplier of high-bandwidth memory chips.
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