Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Initially simply called “NV” for “Next Version” and then becoming a homophone for “envy” in Latin, NVIDIA Corporation is one of the world’s leading microprocessor companies. The company is also responsible for popularizing the phrase “Graphical Processing Unit” (GPU) in the course of describing some its leading products, which has gone on to elevate and enhance the experiences of many a gamer in the world.
The company’s stock (Nasdaq ticker: NVDA) is currently one of the most watched in the world right now since it lies squarely in the middle of the “tech” zeitgeist of high-conviction names for many investors. This conviction isn’t exactly unearned.
A quick rundown of the past two years’ Full Year results versus the first quarter of this year – as per the company’s calendar – shows at least partially why the stock is so highly prized:
In past fiscal years, the trends indicate an all-round positive growth in excess of cost increases coupled with an almost-doubling of earnings per share attributable to common shareholders. In the current quarter, there is a slight indication that while costs and current liabilities are roughly proportional to one-fourth of the previous year’s figures, the revenue is a little less than a fourth. Diluted earnings per share, after accounting for a four-for-one stock split executed on July 19, 2021, also trails relative to the corresponding quarter in the previous year.
This isn’t necessarily a major concern this early in the fiscal year. However, like every other stock – particularly “tech” names – in the year so far, the stock price has seen a precipitous fall. The reasons for this is more reflective on the stock’s valuation as opposed to the company.
Ratio and Volume Analysis
From March of last year through this week, an analysis of the 3 ratios as carried in our recent articles, reveal a few interesting facets:
While the stock’s Price to Sales (PS) and Price to Book Value ratios indicate a fair bit of relative stability, the Price to Earnings (PE) ratio – by far the most popular metric for stability evaluation – shows a precipitous decline of nearly 37% in the current week. While high ratios are typically seen in companies with significant invested capital or in those with high growth outlook, lower ratios signify weakening growth outlook or a recognition of the company attaining some semblance of a “steady state” in terms of market share.
BlackRock Investment Institute’s Weekly Commentary dated June 13 attributed the larger organization’s decision to not “buy the dip” in the near term to three reasons:
The energy crunch will hit growth and higher labour costs in the face of inflationary pressures will eat into companies’ profits;
Stock valuations don’t show improvement after accounting for lower earnings outlook and faster expected pace of rate rises;
There’s a growing risk that the Federal Reserve will tighten too much, making equities less attractive.
Leaving aside the third point, there’s an interplay between the first two points: if inflation weighs heavy on the earnings of individuals and corporations alike, what are the likelihoods of an upgrade in rig? Corporations could push back upgrades to improve their earnings while individuals would rather focus on essentials over spending on new tech.
There is also a very different argument as to whether the PE Ratios for long-standing companies should be in the 50s to 70s while simultaneously considering them to be stable in the first place. A dramatic growth outlook forever simply doesn’t happen.
Given that “tech” stocks have been a hot choice for investors for quite some years now, this leads to a consideration of traded volumes. Over the year till date (YTD), traded volumes have generally been trending down after the customary “January bump”. However, when comparing trading volumes in the stock versus the “tech-heavy” Nasdaq-100 (here represented by the ETF QQQ), this overall market trend isn’t very smooth.
Overall, there is a very high degree of correlation between rallies in the broader ETF and the stock. One possible attribution for the strong tendency to attempt a bullish rally on tech stocks (that nearly always come a cropper shortly thereafter) could be overall historical sky-high valuations in “tech”. If so, reality has been biting market participants hard; there appear to be simply no strong support for rosy Total Addressable Market estimates, operational efficiency estimates, et al in the face of increasing external pressure on earnings.
While companies like NVIDIA are indeed valuable and can very well be considered as leading tech adoption, the overall conclusion seems to be that expecting the status quo from 2020 or even 2021 lies at odds with base reality: in the present day, overvaluation comes with volatile downward trends. In the months or quarters forward, a series of price discovery actions around certain levels could be expected. This gives an advantage more to the tactical investor with access to short-term trading instruments with daily-rebalanced inverse and leverage factors embedded who can capitalize on cycles of rises and falls. For long-term stock holders, the prospect of erstwhile stock valuations returning any time soon remains murky at the moment.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
Terms and Conditions
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.