Sarge is gearing up.
TheStreet Pro’s Stephen “Sarge” Guilfoyle shifted into combat mode in his Aug. 5 column after shares of artificial intelligence heavyweight Nvidia (NVDA) took a severe shellacking.
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The red ink started flowing after the tech-focused news outlet The Information reported that Nvidia had told Microsoft (MSFT) , as well as an unnamed cloud-service provider client, that a design flaw had been found in the Blackwell architecture, which could delay its production ramp and delivery dates by around three months.
Nvidia, which unveiled the Blackwell line of processors earlier this year, has said the flagship chips perform artificial intelligence tasks at more than twice the speed of its current Hopper chips while using less energy and providing more bespoke flexibility.
“One thing I have done well since the 10-for-one split is trade Nvidia,” Guilfoyle said. “So far, so good.”
Nvidia, which briefly surpassed Microsoft as the world’s most valuable company in June, unveiled its stock split plans in May. This followed a blowout fiscal-first-quarter earnings report that included better-than-expected sales and a robust demand outlook for the Blackwell processors.
“We know that typically stocks run up into splits and then sell off after said split,” Guilfoyle said. “It took Nvidia a while to get there. I thought that maybe, just maybe… I would not have to sell any Nvidia. So much for that fleeting sense of joy “
Jensen Huang, co-founder and chief executive officer of Nvidia Corp., speaks during an event in Taipei, Taiwan, on Sunday, June 2, 2024.
Manage risk with discipline, not heart
Fortunately, he added, “Because I manage risk according to a code of time-honored discipline and not with my heart, I took some NVDA off as the stock broke $125, $120, and then $110.”
Stocks, in general, were sliding in the face of a global market rout fueled by recession fears, overbought tech stocks, and rising geopolitical risks.
Related: Top analyst puts Nvidia stock on key list after $500 million slump
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said: “Traders wasted no time in running for the exits as a weak manufacturing survey on Thursday caused some jitters and an unexpected 0.2% jump in the unemployment rate on Friday resulted in panic.”
“Oftentimes, the weekend is a time for cooler heads to prevail and for calm to reassert itself, but based on futures trading this morning, the opposite is occurring,” he said.
Zaccarelli said that it remains to be seen whether this recent weakness in the labor market “is the canary in the coal mine–in which case the selling is justified–or if it is just a temporary cooling of the job market, in which case this will prove to be another buying opportunity.”
Nvidia is scheduled to report quarterly results on Aug. 28, and Guilfoyle said, “there are several items that will very likely impact any forward-looking guidance Nvidia was set to provide.”
“We’ll look for an unadjusted earnings per share of around $0.62 on more than $26 billion from Nvidia for the completed quarter,” he said. “That will end up looking like 125% earnings growth on 110% revenue growth. Huzzah! Guidance may be a riddle.”
But, wait, Sarge added, there is also an apparent stock market crash underway “as the U.S. and most of the developed world have allowed themselves to drown in debt.”
“All mega-cap tech will be impacted. Is this Lisa Su’s golden opportunity at Advanced Micro Devices?” he said, referring to AMD’s chief executive officer. I wouldn’t doubt it.”
Nvidia’s stock has surrendered its 50-day simple moving average, as its Relative Strength Index starts to move lower and its daily moving average convergence oscillator has already fallen out of bed, Guilfoyle said.
“Why did I add some NVDA back to my position this morning?” he asked. “Simple. That gap from mid-May has been filled at least during non-regular hours. Does that mean NVDA is close to the bottom? That I do not know.”
Several analysts reacted to Nvidia’s current troubles.
Bernstein noted that last week was rife with news of flux in Nvidia’s Blackwell roadmap, culminating with The Information article.
Amid the recent turn in sentiment around AI this latest news likely won’t make things better, the firm said. But while potential delays are never great, Bernstein said it is “not panicking just yet.”
Analyst notes ‘executional hiccup’
At a minimum, despite recent worries over AI, ROI, etc., it remains clear that demand levels continue to rise, Bernstein said, and Nvidia has other products to sell in the meantime to help backfill.
The firm has an outperform rating on the shares with a price target of $130.
Deutsche Bank analyst Ross Seymore kept a hold rating on Nvidia with a $100 price target after The Information and other sources reported potential delays in the launch of the company’s next-generation Blackwell chips.
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Such an “executional hiccup” is rare for Nvidia and adds uncertainty in an already volatile market, the analyst said.
However, Seymore said that he sees little financial risk to Nvidia in the near term for its earnings report on August 28, given the “still-strong demand” from its cloud customers.
Deutsche believes artificial intelligence demand, as measured by capex spend, appears to be healthy.
Bank of America Securities said that Blackwell is not in estimates until fiscal Q4 and that Nvidia only reports and guides one quarter at a time.
If needed, BofA said, Nvidia can extend the lifecycle of its current-gen Hopper while launching less complex Blackwell versions as a stopgap. However, any pushouts could further pressure Nvidia’s stock amid ongoing market uncertainty around rates and geopolitics.
However, the firm said that it viewed any selloff as an enhanced buying opportunity as challenges are not in demand but in “solvable” supply issues that will not fundamentally derail Nvidia’s longer-term momentum.
BofA maintains a buy rating and $150 price target on what it calls its top sector pick ahead of Nvidia’s fiscal second-quarter results.
“Emotion cannot enter into decision-making,” Guilfoyle said. “Two sources of water, clean socks, long arm, side arm on the hip, at least 90 rounds. Ka-Bar or tomahawk on the other hip, boot knife, survival knife upside down on the chest, two throwing knives attached to the back of your harness near the nape of your neck.”
“Now, we’re ready,” he continued. “Get to work. We’ll live off the land if we must. For we may win, and we may lose, but honor is forever. Our field awaits.”
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