Nvidia is still suffering fallout from its drastically lowered revenue guidance for Q3 of $5.9 billion due to continued deceleration in the gaming segment. This means there is plenty of room for multiple compression.
Nvidia is currently trading at a P/E of 30 and a forward P/E around 38 while its sector trades at a forward multiple closer to 17. Additionally, higher treasury yields mean that future profits are discounted at a higher rate (see Discounted Cash Flow Model), which makes stocks like Nvidia that depend on much higher future profits less attractive. This means institutional investors are likely to cut some of their equity holdings to buy treasuries and wait out the storm. As interest rates rise, risk-free treasury bills and bonds have a better risk-return profile than equities. This is basically an interest rate story. NVDA stock is trading up 1.2% at $132.82 in Wednesday's premarket. This showed that inflation was likely to be much harder to tame and would require the Fed to raise interest rates higher than expected. Though the headline figure was not terrible, core inflation (excluding energy and food) rose 0.6% MoM. The cause for Tuesday's capitulation trade was the worse than expected inflation reading that was released before the market opened. After losing 9.5% on Tuesday, much worse than the Nasdaq's dreadful 5.5% finish, fans seem to be growing more skeptical of the leader among US semiconductor designers. Nvidia (NVDA) stock charts are pointing to further weakness ahead.
332 contracts have traded at this strike so far in the session. Put contracts expiring September 23 for the $132 strike price have risen more than 8% on Wednesday to a price per share of $6.18. The future of much higher interest rate increases over the next three to four months due to persistant inflation has the usual suspects deciding not to buy this dip. Typically, higher beta stocks will outperform the indices on green days, but Nvidia is trading as if the market is performing a reassessment. Despite the market-wide recovery (all three major indices are ahead by less than a percentage point), Nvidia stock still looks weak. NVDA shares are down 0.5% half an hour into the session, while the Nasdaq Composite is actually up by the same amount. UPDATE: A day after the September 13, inflation-induced mayhem, Nvidia is once again proving that it is weaker relative to the market.
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