Why is NVIDIA Falling?
In the case of NVIDIA ($826.8|3.77%), it is a long list of factors that are happening at once. The stock enjoyed a banner year in 2021, establishing itself as the leader in the chip sector, and the darling of Wall Street analysts. CEO Jensen Huang showed the world his charisma and vaulted to the top of the list of America’s top CEOs. The global chip shortage justified how important these companies are to our world moving forward as technology continues to advance. But you know what they say: that was then and this is now.
NVIDIA has been a disaster so far this year, but then again, so has nearly every other tech stock that trades on the NASDAQ. The tech-heavy index has fallen well into correction territory, and is now down by 14.5% in just three weeks this year. NVIDIA itself has lost 26% of its stock price or the equivalent of about $78 per share. Ouch.
Say Goodbye to Arm?
One of the major reasons that NVIDIA did so well last year was the looming acquisition of UK chip company Arm Ltd. The deal was set to be for over $40 billion USD, but European regulators had something to say about the deal going through. Since then, it has been in limbo. But it was reported earlier this week by Bloomberg that NVIDIA is preparing to walk away from the deal, instead of waiting months for a regulatory decision to be made.
The stock reacted as you might think, dropping by nearly 5% on the news. The thing is, the deal seemed dead the second that EU regulators stepped in. A lot of pessimism about the deal happening had already been baked into the stock price before. I think NVIDIA is nearing oversold territory, and here’s why.
NVIDIA Should Recover Nicely
There’s a reason why Wall Street analysts have an average 2022 price target of $359.17 across 25 different analysts. NVIDIA is a tech powerhouse and the company hasn’t skipped a beat since its stock has been tanking. Oh by the way, that price target represents a more than 60% upside from its current price levels. Another factor that has been bogging NVIDIA down? The recent volatility of the cryptocurrency markets. Sure, NVIDIA chips are used for crypto mining, but the volatility really has nothing to do with NVIDIA as a business. If you think a market worth $3 trillion USD is about to disappear, you have another thing coming.
The Metaverse is also picking up steam as it was revealed earlier this week that Meta Platforms (NASDAQ:FB) has called upon NVIDIA and AMD (NASDAQ:AMD) to help build the most powerful AI supercomputer ever made. Huang has spoken often about how NVIDIA’s Omniverse will help usher in a new generation of enterprise software services. NVIDIA’s recent weakness has been due to a number of factors, but most of all, it is the ongoing tech sell off during this NASDAQ correction that is hitting the mega-cap tech companies hard. Could NVIDIA fall lower? Absolutely but that doesn’t mean it is not a great investment at these prices.
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