Nvidia Denied Receiving Antitrust Subpoena. Should You Buy the Dip?

Nvidia's plunge on Tuesday triggered a sell-off in chip stocks as a new wave of market panic appears to be sweeping in again. According to Bloomberg data, a measure of 30-day volatility in Nvidia shares has also hit the highest since mid-2022.

Despite September's usual market turbulence, some traders see it as a potential buying opportunity, especially for chip stocks. Others are cautious due to market instability and upcoming job reports.

Analysts said Nvidia's big drop is due to worries about its earnings report, fears that the company is overvalued, and slower revenue growth. Also, weak chip sales are hurting the industry outlook.

UBS analyst Timothy Arcuri said the 11.1% drop in chip sales from June to July was below the 5-year and 10-year averages.

"Memory was the main downside driver," Arcuri said in a client note. "Key segments including MCU (microcontroller unit), DSP (digital signal processor) and analog posted declines that were worse than their respective seasonal trends over both the past five and 10 years."

"Investors are starting to doubt if they'll see the returns they expected. They're getting nervous as some economic data looks weaker. The big question now is whether the excitement for investing in cloud computing will continue," according to UBS Global Asset Management analysts.

On the other hand, many still support Nvidia and other AI chip stocks, viewing this as a good buying opportunity by saying revenue growth is expected to slow down after a period of strong growth. Investors should not expect the stock price to rise as rapidly as before.

"We expect market volatility to rise soon, but we still see every drop as a chance to buy. Asian chip markets are likely to bounce back quickly. Fears about AI demand slowing down are overblown, and strong demand for AI and its infrastructure should continue into the first half of next year," said Jung In Yun, CEO of Fibonacci Asset Management.

Meanwhile, Piper Sandler analyst Harsh Kumar says Nvidia’s recent results weren’t what investors hoped for, but he still believes in the company. He sees strong demand for Nvidia’s new Hopper chips and expects sales to keep growing in the second half of the year. Also, revenue from Blackwell chips is getting back on track.

Bloomberg reported that the U.S. Department of Justice issued subpoenas to Nvidia and several other companies. But Nvidia recently responded by saying they asked the Justice Department about the matter but had not received any subpoenas. Nvidia stated that its success is due to its strong products and that customers can choose the best solution for their needs. The company is also open to answering any questions from regulators.

Three key levels could probably decide if Nvidia stays a top player in the market.

The first key level is a psychological level of $100. The second is the all-time high made this year, around $95. The last important level is the 200-day moving average, between $85 and $90, which is also the low located on August 5.

"I don't want to see the stock make a new closing low by taking out the August low. That would really suggest that things have changed, at least in terms of the technicals," Woods said. "I think it will catch a bid around $100, then trade sideways for a bit."

Also, if shares of Nvidia approach their rising 200-day moving average, which they have been above since January 2023, Wald would view it as "an opportunity to buy the stock's intact uptrend."

"NVDA shows signs of intermediate-term and long-term upside exhaustion from an overbought/oversold perspective. We expect the stock to stay in its digestive phase for a few months," Fairlead Strategies said. This might imply shares of Nvidia appear tired and could be moving sideways for some time.

"We're in a bit of a void right now. We're through with earnings, and there is a lot of economic data coming up this month. There's a lot of caution ahead of that," according to Michael Kirkbride, portfolio manager at Evercore Wealth Management. "When you're in a trading vacuum, it becomes a shoot-first market that is very short-term in nature."

Vivek Arya from Bank of America sees the current challenges as short-term and believes it's a good time to buy Nvidia stock. He raised the target price to $165, saying Nvidia's valuation looks appealing, as its price-to-earnings ratio is now at the lower end of its five-year range. Arya also expects improvements in the supply chain, especially with new Nvidia products, to help the stock recover.