Bank of America warns: Nvidia's stock price may pull back
Bank of America warns: Nvidia's stock price may pull back
Nvidia's performance and share price continued to improve, making it a Wall Street darling, but some analysts warned investors.Bank of AmericaResearch analyst Vivek Arya (Vivek Arya) said in his recent report that Nvidia may experience a sharp correction in the near future.
Aya believes that investors in the current market have very high expectations for Nvidia's performance, which in turn curbs Nvidia's potential to exceed expectations. If Nvidia's earnings report does not meet expectations, the pressure on the stock price will be enormous. Aya believes that although this pullback may be obvious, it will also be very short. Aya stressed that Nvidia's failure to meet optimistic expectations will be due to supply-side factors and is largely unrelated to changes in demand and competition.
Nvidia's performance and share price continued to improve, making it a Wall Street darling, but some analysts warned investors.Bank of AmericaResearch analyst Vivek Arya (Vivek Arya) said in his recent report that Nvidia may experience a sharp correction in the near future.
Aya believes that investors in the current market have very high expectations for Nvidia's performance, which in turn curbs Nvidia's potential to exceed expectations. If Nvidia's earnings report does not meet expectations, the pressure on the stock price will be enormous. Aya believes that although this pullback may be obvious, it will also be very short. Aya stressed that Nvidia's failure to meet optimistic expectations will be due to supply-side factors and is largely unrelated to changes in demand and competition.
Meanwhile, Aya believes that market fluctuations should be resolved after Nvidia's GPU technology conference to be held in mid-March. “As a reference, Nvidia shares rose an average of 6% (while the S&P 500 index rose 1%) in 1 day after the past six annual GTC activities,” Aya said.
“We think one explanation for Nvidia's volatility is the intertwining of fear, greed, and investors' blind pursuit of all things AI-related. We acknowledge these factors, but believe this underestimates the firm's solid execution and earnings per share correction.” Aya said.
Tech stock bubble warning
The crazy rise in technology stocks, led by Nvidia, led the current round of the bull market in US stocks. Whether they are institutional investors or individual investors, they are investing more attention and capital into technology stocks.
According to the Bank of America Global Fund Managers Survey, institutional allocation to the technology industry has risen to a new high since August 2020. Individual investors, on the other hand, seek greater returns through derivatives such as options. According to Cboe Global Markets data, bullish demand is close to the most distorted level since the 2021 Meme (junk small cap) stock boom.
Additionally, billionaire investors have been increasing their investments in the chipmaker, including Ray Dalio, Paul Tudor Jones, and Stanley Druckenmiller.
But more and more analysts are warning about the risks of investing in tech stocks.
FaxingbanksWell-known strategist Albert Edwards (Albert Edwards) predicted an internet bubble more than 20 years ago. Earlier this month, in a note to clients, he said: “I never thought we would go back to a level where the US tech industry is once again worth one-third of the US stock market, which is incredible. This is only slightly higher than July 17, 2000NASDAQAn all-time high at the peak of the tech stock bubble.”
Edwards said that the current stock market is likely to repeat what happened back then: the fundamentals of the technology industry are out of touch with its price trends. Although the industry's earnings performance is on average better than other segments of the market. Furthermore, despite rising tech valuations, investors felt the need to invest in tech stocks so they wouldn't miss out on the rise.
Edwards said, “I think back to 2000, when the statement about the IT bubble was very persuasive, just like now. But just like in 1999, skeptical investors now face the problem that selling or reducing their holdings of US IT stocks could damage performance if they exit too soon.”
Bank of AmericaAnalyst Michael Hartnett (Michael Hartnett) warned in the report that all asset bubbles are based on a good and solid economic foundation, and that cheap and declining interest rates are a prerequisite for the formation of asset bubbles. However, the current interest rate spread between high-rated US bonds and US Treasury bonds has narrowed to 86 basis points, the lowest point since 2020. At the same time, the concentration of US stocks reached its highest point since 2009. He stressed that January was dominated by technology stocksNASDAQIndices and bond yields both rose, which is bubble behavior.
Jeffrey Schulze (Jeffrey Schulze), head of strategy at ClearBridge, also pointed out that the five largest stocks currently listed on the market account for about 24% of the weight of the S&P 500 index, which is far higher than the high point during the internet bubble.
Therefore, once Nvidia's performance fails to meet market expectations, it may cause market turmoil and short-term adjustments. Carson Wealth Management wrote in its market outlook report that poor financial reporting will become technology (in particularAIand the chip sector) as a catalyst for profit return. If the Fed's delay in interest rate hikes is added to the impetus for bond yields, there will be doubts about whether US stocks can still face it calmly.
Article Source: Securities Times
“We think one explanation for Nvidia's volatility is the intertwining of fear, greed, and investors' blind pursuit of all things AI-related. We acknowledge these factors, but believe this underestimates the firm's solid execution and earnings per share correction.” Aya said.
Tech stock bubble warning
The crazy rise in technology stocks, led by Nvidia, led the current round of the bull market in US stocks. Whether they are institutional investors or individual investors, they are investing more attention and capital into technology stocks.
According to the Bank of America Global Fund Managers Survey, institutional allocation to the technology industry has risen to a new high since August 2020. Individual investors, on the other hand, seek greater returns through derivatives such as options. According to Cboe Global Markets data, bullish demand is close to the most distorted level since the 2021 Meme (junk small cap) stock boom.
Additionally, billionaire investors have been increasing their investments in the chipmaker, including Ray Dalio, Paul Tudor Jones, and Stanley Druckenmiller.
But more and more analysts are warning about the risks of investing in tech stocks.
FaxingbanksWell-known strategist Albert Edwards (Albert Edwards) predicted an internet bubble more than 20 years ago. Earlier this month, in a note to clients, he said: “I never thought we would go back to a level where the US tech industry is once again worth one-third of the US stock market, which is incredible. This is only slightly higher than July 17, 2000NASDAQAn all-time high at the peak of the tech stock bubble.”
Edwards said that the current stock market is likely to repeat what happened back then: the fundamentals of the technology industry are out of touch with its price trends. Although the industry's earnings performance is on average better than other segments of the market. Furthermore, despite rising tech valuations, investors felt the need to invest in tech stocks so they wouldn't miss out on the rise.
Edwards said, “I think back to 2000, when the statement about the IT bubble was very persuasive, just like now. But just like in 1999, skeptical investors now face the problem that selling or reducing their holdings of US IT stocks could damage performance if they exit too soon.”
Bank of AmericaAnalyst Michael Hartnett (Michael Hartnett) warned in the report that all asset bubbles are based on a good and solid economic foundation, and that cheap and declining interest rates are a prerequisite for the formation of asset bubbles. However, the current interest rate spread between high-rated US bonds and US Treasury bonds has narrowed to 86 basis points, the lowest point since 2020. At the same time, the concentration of US stocks reached its highest point since 2009. He stressed that January was dominated by technology stocksNASDAQIndices and bond yields both rose, which is bubble behavior.
Jeffrey Schulze (Jeffrey Schulze), head of strategy at ClearBridge, also pointed out that the five largest stocks currently listed on the market account for about 24% of the weight of the S&P 500 index, which is far higher than the high point during the internet bubble.
Therefore, once Nvidia's performance fails to meet market expectations, it may cause market turmoil and short-term adjustments. Carson Wealth Management wrote in its market outlook report that poor financial reporting will become technology (in particularAIand the chip sector) as a catalyst for profit return. If the Fed's delay in interest rate hikes is added to the impetus for bond yields, there will be doubts about whether US stocks can still face it calmly.
Article Source: Securities Times
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