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The weight of high expectations is often a heavy burden to carry.
In life, if you are a top performer at work, you are expected to perform at your best every day. Having a bad day? That’s not allowed, so go take that crap somewhere else.
Sure, some college professor who gave an inspiring TED Talk on leadership 10 years ago and is now appearing in one-minute clips on your Instagram feed might suggest that it’s okay to have bad days at work, even if you’re a winner.
Trust me, that’s not the case – and don’t let this social media clip let you think otherwise.
This same philosophy can be applied to the hottest stock in the stock market: Nvidia (NVDA).
I know you love this transformation, Morning brief Readers! Listen to me as I tell you about this top performing product on the market.
Over the past week, we’ve been reminded just how inflated expectations are for Nvidia and how the stock has entered dangerous waters that many traders who arrived late to the Nvidia game have never traveled before.
On June 18, Nvidia’s market cap hit a staggering $3.34 trillion, overtaking Microsoft (MSFT) to become the world’s most valuable company. Over the next three trading days, in the absence of any fundamental news, the company lost $430 billion in market value.
For perspective, Coca-Cola (KO) has a market cap of $275 billion.
Some people I spoke to told me that people were getting dividends from Nvidia as the second half of the year began. Others I spoke to for “Open the bid“There’s been some talk of new competitors entering the Nvidia space, and the company probably won’t be as absurdly dominant over the next five years as many expect,” the podcast told me.
All of this is fair, but it reinforces the view that the stock is vulnerable to sharp, unexpected negative shifts in sentiment because it’s up 3,000% in five years.
But if you dig deeper, you can see how intense the expectations are from Nvidia.
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According to research by Charlie Belillo, chief market strategist at Creative Planning, Nvidia shares now trade at about 21 times (a very high sales multiple), up from 12 times (also a high multiple) two months ago. This represents a significant premium to Microsoft at 12x and Apple (AAPL) at 8x, two tech giants that are performing very well on fundamental terms and are likely to continue to shine for years to come.
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BTIG chief market technician Jonathan Krinsky noted that Nvidia shares recently traded 100% above their 200-day moving average. Since 1990, the widest spread any U.S. company has traded above its 200-day moving average when it was the world’s largest company was 80% for Cisco (CSCO) in March 2000, which marked an all-time high. “In other words, Nvidia is in a league of its own,” Krinsky said.
It certainly seems that way.
Similar expectations were made for chipmaker Micron (MU), which reports earnings this week. The stock was blown away by “inline” guidance that didn’t meet crazy expectations for anything related to AI demand.
I stress the crazy here: On Monday, several seller-side analysts raised their estimates and price targets for Micron ahead of the report’s release. As someone who used to manage a team of stock researchers, I can assure you that this action before an earnings report is not the norm.
It reeked of analysts buying into the hype and hoping for a big one-day spike in the stock.
“When you get a reaction like the Micron reaction, where the numbers have to be good enough to avoid a sell-off, let alone trigger a rally, that’s a bad sign — a sign that expectations are too high to exceed,” Steve Sosnick, chief strategist at Interactive Brokers, told me.
Others disagree with my assessment that Nvidia’s price is perfection, and that’s perfectly fine. I have no monopoly on good ideas!
“But for medium- to long-term investors, the story still holds when we look at how well their capacity is booked and prices are holding up,” said Chris Versace, co-founder and chief investment officer at Tematica Research.
There’s one thing we can all agree on: Nvidia is a high-performing company in the market, and you won’t get a pass for trying to take a day off if you come down with a cold.
Speaking of expensive tech stocks, Amazon (AMZN) shares are up 55% in the past year. However, questions remain about its culture. Wall Street Journal reporter Dana Mattioli talked about her controversial new book, “The War of Everything: Amazon’s Cruel Quest to Own the World and the Remaking of Corporate Power,” on an episode of The Business Insider.Open the bid“Podcast. Listen below.”
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