NVIDIA (NASDAQ:NVDA) stock capped off a rough-and-tumble week on Friday, sliding perilously close to the key $100 level. There was no company-specific negative data release to cite, but several factors likely contributed to the market’s anxiety toward NVIDIA.
One pain point was the investor’s stunningly negative reaction to fellow chipmaker Broadcom Inc's (NASDAQ:AVGO) third-quarter fiscal 2024 report. Another possible source of consternation was the disclosure that NVIDIA CEO Jensen Huang sold millions of shares of his company.
Furthermore, a particular data point concerning U.S. nonfarm payrolls might have put NVIDIA’s shareholders in a selling mood. Thus, a multitude of dismay drivers evidently prompted the sour sentiment surrounding the artificial intelligence (AI) GPU king, NVIDIA.
The market was much calmer overall on Monday. This is a sign that NVIDIA stock is due for a bounce, as the prior week’s fear and selling pressure were probably overdone and unnecessary.
Broadcom stock gets slammed
Like NVIDIA, Broadcom is a chipmaker in the U.S. Consequently, since Broadcom stock tumbled last week, skittish NVIDIA stockholders sold their shares. This phenomenon is sometimes called the “sympathy effect.”
Just to recap, Broadcom’s third-quarter fiscal 2024 revenue grew 47% year over year to approximately $13.1 billion, beating the analysts’ consensus estimate of $12.98 billion. Meanwhile, Broadcom’s adjusted (non-GAAP) EPS of $1.24 surpassed Wall Street’s consensus forecast of $1.22.
Those are Street-beating results, but evidently the market obsessed over Broadcom’s fourth fiscal quarter revenue guidance of approximately $14 billion. In contrast, analysts estimated $14.11 billion.
That’s not a very wide “miss,” if we should even use that term since we’re referring to forward guidance rather than actual results. Besides, Broadcom’s problems aren’t necessarily NVIDIA’s problems. When a stock goes down due to the “sympathy effect,” this can create prime opportunities for level-headed investors.
Another possible cause of consternation last week was the discovery that Huang sold millions of NVIDIA shares. Reportedly, the CEO sold nearly 5.3 million NVIDIA stock shares in total between June 13 and September 5.
However, Huang sold those shares as a result of a Rule 10b5-1 trading plan, which would have Huang sell NVDA stock shares when certain conditions were met. The idea is to prevent Huang from capitalizing on insider trading opportunities.
In other words, Huang’s share sales don’t necessarily indicate a lack of conviction in NVIDIA. Bear in mind, Huang holds around 3.5% of NVIDIA’s outstanding shares as of August 9, making him the company’s largest individual shareholder at that time (and probably today, as well).
Jobs data stokes fear
In addition, the Bureau of Labor Statistics released a less-than-ideal jobs report last week. In August, the U.S. labor market added 142,000 nonfarm payroll jobs, falling short of the 165,000 that economists had expected on average.
This isn’t NVIDIA’s fault, of course, and it’s not necessarily a sign that the U.S. is on the cusp of a recession. Bear in mind that the unemployment rate fell from 4.3% in July to 4.2% in August. Plus, wages grew 3.8% year over year in August versus 3.6% in July.
The market was seemingly hyper-focused on the nonfarm payroll jobs data and decided to sell risk-on assets like NVIDIA stock. On Monday, however, a sense of calm prevailed, and NVIDIA’s shares traded firmly in the green.
NVIDIA stock is a buy anywhere near $100
Even after bouncing on Monday, NVIDIA stock is still fairly close to the $100 level. The shares traded near $130 in mid-August.
There will be ups and downs in risk-on assets and in NVIDIA stock specifically. This is a normal function of the financial markets, and it’s not always a signal to panic sell your NVIDIA shares.
Nervous traders used Broadcom’s revenue guidance, Huang’s share sales, and a payroll data point to dump NVIDIA stock. If the NVIDIA share price is still anywhere near $100 or $105 when you read this, it’s worth buying and holding with $130 as a reasonable near-term price target.