Nvidia Stock Downgrade (Whats Next) | The Economic Ninja

Invidia stock just suffered a very rare type of downgrade. It’s a very interesting time. I’ve got two stories to go over with you. One about the downgrade, another warning about the size of Invidia stock, the market cap, and what could be coming for the S&P. And I think that all investors should be considering this because it seems like every seven to ten years when the stock market goes through a big correction, they forget it. And this is just like what happened when I lived through as an investor in the dot-com bubble where I saw stocks go from $2 to $800 and then down to not pennies but like in the teens.

Absolutely amazing run-up. Blow off top and implosion in the price of the stocks. So let’s start here with Invidia. Hashtag Invidia or type one if you own the stock. I’m curious how many people do. This first story is out of Market Insider. It says Invidia just got a rare stock downgrade. It says here Invidia’s stock just received this rare downgrade on Friday. New Street research analyst Pierre Fergou, for lack of better, you know, I butchered that one, downgraded shares of the artificial intelligence powerhouse to neutral from buy. In a Friday note, arguing that the stock appears to be fully valued.

Fergou hasn’t necessarily turned bearish on the stock. The analyst has a one year and two year price target of $135 and $143, respectively, representing a potential upside of 6% to 12% from current levels. He’s simply less bullish than he recently was and less optimistic than much of the rest of Wall Street. Now, what’s really interesting is when a stock analyst comes out, the first one to make a decision like this to go against the grain, go against the tide, because this company has been in the spotlight for quite some time.

And it’s important to know that it’s very hard for someone to jump out and be the first one. However, what happens is all the other analysts, they don’t want to be wrong. So what they’re doing is they’re weighing all of this information right now. And there may be a couple of more analyst downgrades. Now, when that usually happens, we see investors start to sour going, well, maybe they know something I don’t, so I run for the exit. When you get more sellers than buyers of a stock, we all know what happens to the price.

Now, he says here, we see limited further upside based on what we hear from the value chain. Fergou said, we downgrade the stock to neutral today as upside will only materialize in a bull case in which the outlook beyond 2025 increases materially. And we do not have the conviction on this scenario playing out yet. Fergou said that while NVIDIA still has the strongest AI franchise among its competitors, a more prudent view on the stock is necessary after its year to date rally of 157%. He says, the quality of the franchise is nevertheless intact.

And we would be buyers again, but only on prolonged weakness. Downbeat opinions on NVIDIA are rare among Wall Street analysts, with 89% of the 72 analysts who cover the company rating the stock a buy, according to data from Bloomberg. Now, in the last year and a half, we have seen AI come into real existence. We know it’s been around before this, but really available to the public. And this is what NVIDIA capitalized on. They were able to sell processors to all types of people and companies to build this infrastructure. Now, there’s a point when AI is going to do its job and run its course, especially in the stock market when it comes to hot words, right? We saw this with cryptocurrency or blockchain.

Years and years ago, when companies would actually change their name to have the word blockchain in it, publicly traded companies, in order to see a boost in shareholder excitement on people buying their stock, right? Well, AI, artificial intelligence, is the exact same thing. I’m not going to say it’s a fad, because it’s not, it’s going to always be here. But the excitement is a fad, the cycle of excitement. Now, this stock has been making so much news because people are getting super rich, and they feel rich. Problem is, you’re not rich until you sell what made you rich, right? And just like the dot com bust, a lot of people had diamond hands and rode those stocks all the way to the bottom.

And I believe that’s what’s coming next. Not only NVIDIA as the stock, not saying it’s not worth something, but the entire stock market. And I’m going to show you right now, check out this story out of Fortune. This just came out about a week ago. NVIDIA alone accounts for more than one third of the S&P 500 gains this year. And it’s a big risk for investors and top economists. Why? This stock, the S&P 500 has been on a terror for years. We all know that everybody quotes it, everybody loves it until it’s going down.

Ironically, people only like when things go up, they don’t love when things go down. I love it when things go down. Either I’m shorting something and I’m not shorting NVIDIA, just to be clear. But also, I’m looking for value. And just like this last article I just went over with you says, they are still buyers of this stock after the stock price sees prolonged weakness, not company fundamental weakness. They don’t want to jump into AI and needing these processors, or the world moves into a recession, or heaven forbid, a depression.

And there’s less need for companies to be using AI, right? Because they can’t sell anything. So there’s closing their doors. That’s not what he’s saying. He’s looking at price weakness. As long as the fundamentals say the same, I’m looking to add more when the price comes back. That’s what prudent investors and analysts look at. However, not all analysts are right. I mean, if you just look at people like Jim Cramer, type two, if you agree, he’s pretty much a clown at this point, just pumping up certain stocks, right? Creating liquidity. So the point being is that when you see this kind of stuff, and you look at this account, right out of fortune, NVIDIA alone accounts for more than a third of the S&P gains.

Well, what happens when all of a sudden a handful of other analysts go, you know what, we like what he’s saying, we agree with what he’s saying, we’re going to go ahead and switch from a buy to a neutral as well. We’re not downgrading it to sell. We’re just moving from a buy to neutral. What that does is it takes a lot of investors and they go, well, you know what, I’ve already made 100% on my money. Perhaps I should sell my stock or some of it. That creates now a big, vast gap of needed sellers to keep that price moving up.

Then what happens if all of a sudden those buyers don’t come in to suck up the shares that the sellers are trying to sell, it starts having price downward price pressure on that stock. Well, now we’re not talking about just any old stock. We’re talking about a stock that has brought in one third of all the gains in the S&P in the entire year. Now I’m going to do a little quick trivia. How many stocks are in the S&P 500? Just put it down below. So hopefully you see my point when all of a sudden this massive value creator for the S&P starts moving downward, it takes the index down with it.

Then it’s not just Nvidia shareholders and just, you know, I don’t own any Nvidia, okay? I don’t own it. I’m not shortening it, blah, blah, blah. Then what happens is it’s now affecting other stocks. It’s bringing down indexes. People are starting to sell other stocks because this doesn’t look, especially ETFs, right? S&P ETFs. All right. See, people are answering the question. There’s you never know there might be a newbie in here. My point being is this, you need to see that right now we are here. And one of the reasons why the stock market is going up anyway is because we have massive inflation and people are taking money out of savings accounts and either spending it trying to grab more value before they lose value on their dollars or they’re investing it in a money market accounts, bond accounts, stock accounts, cryptocurrency accounts.

This is a big deal. I hope you see the warning signs, meaning that as only a few stocks are holding up the S&P 500, the NASDAQ, the Dow Jones, that means they are exceptionally ripe for failure. I’m getting ready for that failure. Type three, if you’re getting ready for that failure, let me know down below what you’re doing to get ready for it. Hope you got something out of this, the economic ninja is out. [tr:trw].

See more of The Economic Ninja on their Public Channel and the MPN The Economic Ninja channel.