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Macro Valuation® | Report 2 – Nvidia

Rising Tensions and Slowdown to Impact Nvidia Valuation

As we noted in our October 19th post, rising geopolitical tension resulting from the new chip export restrictions will impact semiconductor companies like Nvidia.  After the restrictions were announced Nvida’s stock fell.  In addition to the geo-political risk, we see headwinds with a slowing global economy and valuation risks specific to Nvidia.  The 52 week low was $126 with a high of $502.   The insiders have been selling as the stock reached its peak.  The NVDA chart below shows the stock keeps falling and in our view has further to go on the downside.

Nvidia Price Chart – October 26 2023

It is a strong buy from 38 analyst with valuation at $545 to $1100 per share.  The expectations for Nvidia are way too high and seem like bubble territory given that the highest stock price reached  was at $502 per share.  This represents a crowded trade with consensus on one side of the market thus an extreme point.  While long-term you can probably make this case, we feel that in the short to medium term, the risks are still on the downside.  After reading some of these reports, it seems that the geo-political risk is underpriced or simply ignored.

The option markets are showing much higher volatility on put options especially in the short-term.   We have held a put position on NVDA and it is now currently in profit.  At this point, we will hold this position as we expect it to gain in value as NVDA stock is expected to fall further.