We recently published a list of Jim Cramer discusses 10 stocks that are falling amid the latest market rotation. Given that NVIDIA Corp (NASDAQ:NVDA) is at number 4 on the list, it deserves a closer look.
In a show last week, Jim Cramer tried to make sense of the decline in technology stocks, saying that companies with the “best fundamentals” have been “hit again.”
“I didn’t expect this to happen.”
Cramer said it’s sometimes hard to recognize “winners.” The CNBC host said it’s important to understand the bearish scenarios around stocks, otherwise you’ll never know what “you’re dealing with.”
Jim Cramer tried to determine whether the latest decline in major technology stocks was just a “periodic sell-off” that presented an “opportunity.”
“When we see this kind of rotation, you never know if these stocks are selling because there is a problem or because they are up sharply.”
Jim Cramer pointed out a caveat about holding winning stocks. When you hold losing stocks, you don’t make any profit, but when you hold winning stocks in your portfolio, you can see losses because people want to take some of their profits, Cramer said.
The CNBC host said that when major stocks fall, people who hold them in their portfolio often end up wondering whether they should also sell those stocks and whether something has “changed.”
“As far as I can tell, nothing has changed in the stocks we’re going to talk about tonight. But it’s true that stocks are much more expensive than they were a year ago.”
In this program, we looked at some of the top tech stocks that fell last week and explained why they lost value according to Jim Cramer. We also discussed the fundamentals of these companies and hedge fund sentiment. Why do we care about stocks that hedge funds are heavily invested in? The reason is simple: Our research has shown that we can outperform the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150 percentage points. (see more details here).
NVIDIA Corp (NASDAQ:NVDA)
Number of hedge fund investors: 186
Cramer said in a recent program that he was mentioning a new research paper by Hendrik Bessembinder of Arizona State University. Here’s what the paper says:
“The highest annualized compound return for any stock with at least 20 years of return data was 33.38%, achieved by NVIDIA Corp (NASDAQ: NVDA) shareholders,” the document states.
Cramer said he thought it was an “incredible number” until his colleague David Faber reminded him it was “a question of what have you done for me lately, so it doesn’t matter.”
“That kind of sell-off, that’s the attitude that’s prevailing. That’s why everybody wants to get out,” Cramer said.
NVIDIA Corp’s (NASDAQ:NVDA) rapid growth and rising valuation have started to worry some circles on Wall Street. New Street Research recently downgraded the stock from Buy to Neutral and set a price target of $135.
“We are downgrading the stock to Neutral today because the upside will only materialize in a bullish scenario, in which the outlook beyond 2025 increases significantly, and we are not yet convinced that this scenario will come to pass,” said Pierre Ferragu, analyst at New Street.
New York University professor and valuation expert Aswath Damodoran has also been skeptical of NVDA in recent months, repeatedly saying the stock appears overvalued. In March, when asked about his previous (and ultimately wrong) forecasts for NVDA’s valuation, the professor said he either had “no idea what he was talking about” or that it was the market that simply didn’t get it.
Aswath Damodoran said at the time that even if Nvidia was in the driver’s seat of AI development, its path to profits would not be as smooth as the market assumes.
Recently, Oppenheimer’s Rick Schafer joined the NVIDIA Corp (NASDAQ:NVDA) chorus, raising the chipmaker’s price target from $110 to $150 after the stock split to 10-1.
NVIDIA Corp (NASDAQ:NVDA) is one of the stocks that is making up a significant portion of the market’s total return, thanks to its AI-powered rally that shows no end in sight. Shares of NVIDIA Corp (NASDAQ:NVDA) have gained about 174% over the past year.
Polen Focus Growth Strategy said the following about NVIDIA Corporation (NASDAQ: NVDA) in its Q2 2024 investor letter:
“In the second quarter, the dominant narrative in the markets continued to be that of Generative AI (GenAI). If that wasn’t immediately obvious NVIDIA Corporation (NASDAQ:NVDA)’s meteoric rise to become one of the world’s largest companies, just look to the semiconductor and technology hardware sectors as a bellwether for sentiment, collectively accounting for over 70% of the Russell 1000 Growth Index (the “Index”) and 85% of the overall S&P 500 return for the quarter to date.
Our portfolio is not exposed to NVIDIA or other semiconductor companies currently benefiting from demand for core AI hardware. The biggest relative detractors during the quarter were NVIDIA, Apple and Salesforce.
For the second consecutive quarter, NVIDIA was the biggest drag on relative performance, with the stock up 37%, bringing its year-to-date return to +150%. At the time of writing, NVIDIA is the third-largest company in the world, but for a brief moment, it overtook Microsoft to become the largest company in the world. Once again, the company delivered stellar results that exceeded already lofty expectations, reinforcing the narrative that NVIDIA is the only “clear winner in AI” because of the amount of revenue it currently generates.
Overall, NVIDIA Corp (NASDAQ:NVDA) ranks 4th on Insider Monkey’s list of Top 10 AI Stocks to Buy According to New AI ETF. While we recognize the potential of NVIDIA Corp (NASDAQ:NVDA), we believe AI stocks have more promise to deliver higher returns, and in a shorter time frame. If you are looking for an AI stock that is more promising than NVDA, but is trading at less than 5x earnings, check out our stock report the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.