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Nvidia CEO Jensen Huang unveiled, among other things, the company's next-generation superchip and a partnership with GM (GM) on AI for self-driving cars during his GTC keynote address. Yet Nvidia (NVDA) shares closed more than 3% lower on Tuesday. Why? The Basenese Group founder and chief strategist Lou Basenese explains why investors shrugged off the news in the video above.
To watch more expert insights and analysis on the latest market action, check out more Asking for a Trend here.
He had CEO Jensen Huang. He takes the stage today, Lou. He makes some news, he makes some headlines but the stock, it finishes down, Lou, almost 3.5% on today's trade. What happened? Were investors hoping or looking for news they just didn't get here?
I think it's just a tough tape and Nvidia's become a name where it's "What have you done for me lately?", right? I mean you got to keep innovating, you got to keep showing the sales and it's a victim of its own success to some degree. It's been growing sales and earnings at such a blistering pace that you know, even healthy growth doesn't really excite investors. But again, you start looking at it now on a fundamental value basis. I mean, if we rewind, two years ago, everyone was saying that Nvidia's so overvalued. Well, it grew into that valuation. It's trading now about 26 times forward earnings. I mean after this pullback, you know, it's down from north of 30. It starts to get compelling, given the growth. And if you listen to the presentation today, talking about 100 times more demand for AI chips than we originally anticipated. That's a lot of chips that need to be developed and sold in the coming years and decades. So I think long-term, the trend's intact. Short term, you're just a victim of the market right now.
So if it looks compelling here, Lou, in your opinion, stock's down about 13% year to date, does that mean are you buying here?
Yes, so I had started a position later than everyone else, so that was probably the tell of the top about six months ago I started buying. But yeah, I'm acquisitive here, adding to that position. I think you have to own Nvidia, it's kind of a core holding in the market, the tech, just like you have to own some Apple. But you know, again, I don't want to get overexposed to a name that's been traditionally volatile. I mean I think back in big tech, you know, we look back on the days when Twitter was publicly traded. It was the most volatile stock around earnings, Netflix, Nvidia follows in that same DNA. I don't know that it's one you want to be buying every dip on, but I think you have to have, because it's such a big weighting in the index, you have to have some exposure to it.
So as a chip investor, Lou, and when you want to invest in this space, you're owning individual names. You know, you like Nvidia. Are you just buying individual names? You know, are you also buying ETFs? How how are you playing it?
Yeah, so I go top-down, bottom-up. I play the trend with an ETF, low costs. Make sure that you, you know, you don't have to worry about single stock risk risk. So buy the iShares SOXX ETF. It gives you the coverage and exposure to what's arguably one of the biggest growth trends we've ever seen, you know, after smartphones. I mean chip sales were up 20% last year to north of $600 billion. But then I'm opportunistic. I look for pullbacks in names like Nvidia, um, I look for, you know, I like ARM Holdings, them coming back public. Um, their royalty revenue model, that that business model is really compelling to me as well. And then I'm looking for small and micro cap names potentially that could be the Nvidias of tomorrow. And, you know, again, lot of speculation there. So largely, it's kind of land and expand from the ETF and then find one-off opportunities that could, could add some additional upside without that much more risk.
