As Nvidia goes, so goes the market, and financial Advisors

To paraphrase a medieval cheer: Nvidia is dead! Long live Nvidia!

Shares of the chipmaking colossus immediately sank more than 2 percent in after-hours trading Wednesday following the release of its third quarter earnings report. Nvidia (Ticker: NVDA) posted revenue of $35.08 billion for the quarter ended Oct. 27, a 94 percent increase year-on-year and well ahead of analysts’ consensus estimate of $33.28 billion. Profit at the company was 81 cents a share, excluding certain items, beating analysts’ estimate of 74 cents a share.

Despite Nvidia’s Street-beating results, however, traders’ knee-jerk reaction was to sell the news based on a plethora of reasons ranging from guidance concerns to valuation qualms to manufacturing and cost worries surrounding production of its Blackwell AI superchip.

Many Wall Street-watchers also simply attributed the selloff to profit-taking in the wake of the semiconductor giant’s 200 percent gain so far in 2024.

All that post-earnings release nail biting quickly came to naught, however, as Nvidia's stock opened Thursday morning with an almost 2 percent gain. The inability of the bears to drag down the shares of the market-leading semiconductor-maker, which now comprises a hefty 7 percent of the S&P 500, also provided further fuel to the market’s bulls Thursday morning. Stocks rose across the board once NVDA recovered its footing and its doubters were once again outvoted.

Yes, to paraphrase the Who’s Pete Townshend: Meet the market’s new boss, same as the old boss.

Still, financial advisors and their clients have seen similar shooting stars crash to Earth in previous manias, be they internet bubble or meme stock. And having lived through those crazy days, they most certainly (hat tip to Pete once more) "won’t get fooled again," right?

NVDA is already a significant holding for Craig Warnimont’s clients at Venture Visionary Partners. And he has no plans to trim his position following what he considers to be “another very strong” earnings report. 

“Because of NVDA being a prominent member of every major large cap index it is, by definition, important to the health of the bull market. However, the bull market does not hinge on every price tick up or down in NVDA stock,”  Warnimont said.

As proof of the fact that there is a market beyond NVDA, Warnimont points to other mega-cap star performers including Microsoft (Ticker: MSFT) and Apple (Ticker: AAPL) which have “each taken turns being the leader and then take a breather, like runners in a relay race.”  Further, he notes that NVDA fell over 30 percent from mid-July to mid-August, but the S&P 500 Index only declined around 5 percent over the same period.

Elsewhere, Jim Thorne, chief market strategist at Wellington-Altus, remains bullish post NVDA earnings and challenges the idea that its valuation is stretched. In fact, he calls the stock “not expensive” due to its PEG ratio (Price/Earnings ratio divided by growth rate) being less than the high-water mark of 1.

“As a bellwether for the AI industry and the broader tech sector, NVIDIA’s robust earnings report signals that the AI theme is not just sustaining, but accelerating at a remarkable pace. This performance is crucial for maintaining the broader bull market momentum, especially within the technology sector,” Thorne said.

Or, to paraphrase Louis XIV of France: L’Bourse, c’est Nvidia!

Meanwhile, Stephen Kolano, chief investment officer at Integrated Partners, owns NVDA indirectly in his portfolios through ETF holdings that track the S&P 500, US large-cap growth ETFs, and a few thematic ETFs that include companies with exposure to the AI theme. Right now, he is not adding or subtracting exposure to these ETFs, but not because of NVDA valuation or growth worries.

“The earnings momentum of the company continues to be strong, and the delayed shipments that are referenced appear to be a temporary or timing issue and not related to the ongoing and secular earnings trend that appears to be in place for the company,” Kolano said. “As a result, valuations continue to be supported based on the company’s continued strong earnings growth, which also continues to be supported by the secular trend in AI investment in the broad economy.”

Finally, Brian Glenn, chief investment officer at Premier Path Wealth Partners, said NVDA used to be the barometer for health of AI industry, yet has recently emerged as a “weathervane for innovation broadly across the economy.”

“With a market cap of more than $3.5 trillion that trades more than $40 billion daily, that’s a tremendous amount of liquidity,” Glenn said. “Company-specific results matter greatly in terms of money rushing into or out of the company’s shares - and where that cash comes and goes from elsewhere.”

Or, to paraphrase Watergate journalists Woodward and Bernstein: Follow the Nvidia.