Nvidia is the stock of the year. Can it last?
Analysis by Nicole Goodkind, CNN
New York (CNN) — A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
It would be an understatement to say that it’s been a good year for Nvidia. The California-based chipmaking giant has seen its shares soar about 220% this year, making it the top performing S&P 500 stock in 2023.
But will next year bear the same fruit for the sixth most valuable company in the world?
What’s happening: Just before Thanksgiving, Nvidia crushed doubts that its star was fading by reporting gangbuster third quarter earnings.
Revenue was up 34% from the prior quarter and 206% from a year ago. The company also upped its guidance, meaning it expects the good times to keep on rolling. The AI firm forecast that its revenue for the final quarter of the year would come in at about $20 billion — analysts had projected about $17.8 billion.
Still, there’s a feeling on Wall Street that the reign of Nvidia can’t last forever and that cracks in the company’s facade are beginning to show.
Troubling signs ahead? One troubling sign for Nvidia is that the company’s own executives appear to be cashing out. Executives and top brass at the company sold or said they intend to sell a collective 370,000 shares of the stock in November, according to data from the Washington Service, a data and analytics company.
All in all that’s worth about $180 million.
If all the shares that were registered for sale during November are ultimately sold, the insider aggregate selling would be the largest at Nvidia in a month since December 2021. By value, if completely fulfilled, November 2023 would have the highest monthly value of stocks sold in the history of the company by insiders, according to Hannah de Wolf, business and product development lead at the Washington Service.
No executive or director purchased shares of the company’s stock over that same period.
New restrictions on chip exports to China have also tempered some enthusiasm for the company and could weigh down future profit.
“The export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term,” Nvidia CFO Colette Kress said on a press call last month.
There’s also a question of momentum. Can a company with a $1.2 trillion market cap continue to grow at an exponential rate?
“We’ve all heard the advice to under-promise and over-deliver, but it can start to work against you if people come to routinely expect that sort of thing,” said Steve Sosnick, chief strategist at Interactive Brokers. “It’s something we’ve become accustomed to with NVDA.”
AI goldrush: But Nvidia has been staying relevant by cashing in on the AI craze, much like they did with crypto when that was the trend du jour.
“It is quite reasonable to think of NVDA as selling picks and shovels, first to the cryptocurrency gold rush, now to the AI gold rush,” wrote Sosnick in a recent note.
By Sosnick’s count, Nvidia executives mentioned AI at least 70 times on their most recent earnings call. The term was brought up 37 times even before the first question was asked, he said.
Leaning into AI could extend Nvidia’s success into the new year as Wall Street continues to bet on monetizing artificial intelligence in the hopes of another 1990s-esque tech revolution.
“We view AI as the most transformative technology trend since the start of the Internet in 1995 and believe many on the Street are still underestimating the $1 trillion of AI spend set to happen over the next decade in a bonanza for the chip and software sectors looking forward with Nvidia … leading the way,” wrote Dan Ives of Wedbush in a recent note.
Goldman Sachs analysts recently gave Nvidia a 34% upside over the next 12 months with a price target of $625 per share (it’s currently trading at about $452). Piper Sandler analyst Harsh Kumar believes that the company is still trading at a discount compared with its valuation and that it’s not done with its upward trajectory.
Not everyone agrees. “Nvidia is a great company, but it needs to grow 30% per year for it to sustain its valuation,” Sarat Sethi, DCLA managing partner, said on CNBC last week. In order for that to happen, he said, “people are going to have to pay the same prices at the same margins and demand is going to increase and no competition is going to come in.”
While Sethi thinks it’s a fine stock to own, he cautioned that investors shouldn’t devote too large a percentage of their portfolio to it. “It’s a very volatile stock,” he said.
Historically, Nvidia has had hard falls after missteps — between 2021 and 2022, shares of the stock fell by 66%. “You need to be prepared,” said Sethi.
Unknown traders appear to have anticipated October 7 Hamas attack, research finds
Bets against the value of Israeli companies spiked in the days before the October 7th Hamas attacks, suggesting some traders may have had advance knowledge of the looming terror attack and profited off it, according to new research released Monday.
The preliminary research, which hasn’t been peer reviewed, is from law professors at Columbia University and New York University and details a “significant” and “unusual” spike five days before the attacks in short selling in the most popular fund linked to Israeli companies, reports my colleague Matt Egan. Short selling is a way to bet against the value of a security.
Those bets against the value of the MSCI Israel Exchange Traded Fund (ETF) in the days before the October 7 attack “far exceeded” the short selling activity that took place during the Covid-19 pandemic, the 2014 Israel-Gaza war and the 2008 global financial crisis, the paper finds.
“Our findings suggest that traders informed about the coming attacks profited from these tragic events,” the authors wrote.
The paper, titled “Trading on Terror?”, was written by former SEC commissioner Robert Jackson Jr., who is currently a professor at NYU, and Columbia law professor Joshua Mitts.
The research found that on October 2, just five days before the Hamas attack, “nearly 100% of the off-exchange trading volume in the MSCI Israel ETF … consisted of short selling.”
“Days before the attack, traders appeared to anticipate the events to come,” the professors wrote.
Mitts, one of the paper’s authors, told CNN in a phone interview that due to the limited nature of public trading data, he believes it’s “highly likely” there is more trading that went on behind the scenes. “We are only seeing the tip of the iceberg,” Mitts said. “There is a lot more out there that we can’t pick up on but that regulators should be looking at.”
Mitts added that he and Jackson, his co-author, are “very confident” that the trading activity is “exceptional” and “extraordinary” when compared with over a decade of trading and “not the product of ordinary trading.”
The authors at present don’t know the location of parties making trades and whether the traders were connected to any particular financial firms, government entities or terrorist organizations. And they urge caution before drawing such conclusions.
“Linking it back to Hamas is very speculative and we’re not suggesting this,” Mitts said, adding there are a wide range of possibilities including the potential that someone “overheard something” and acted on it.
Senators urge US-EU deal to avert tariffs on whiskey
A few weeks ago, Before the Bell wrote about a threat to the $5.1 billion American whiskey industry.
The EU, the largest export market for American whiskey, is set to impose a 50% tariff on imports of the golden liquor on January 1.
Spirit industry advocates say that would be a devastating blow to a growing part of the US economy. The move is all part of a retaliatory package of tariffs being imposed on US goods by the EU in relation to a dispute over steel and aluminum.
On Tuesday, a group of bipartisan lawmakers, led by democratic Senator Catherine Cortez Masto of Nevada, sent a letter to the Biden administration, urging officials to resolve the dispute with the EU by the end of the year and avoid what insiders are saying will be “dramatic” damage to the industry.
“The American spirits industry supports over 19,000 jobs in Nevada and funnels billions into our economy each year,” said Senator Cortez Masto. “I’m urging the administration to act now to eliminate these devastating tariffs on American exports and stand up for American workers.”
The letter, shared exclusively with CNN, was signed by 12 US Senators also including Indiana republican Todd Young, Virginia democrats Tim Kaine and Mark Warner, Kentucky republican Rand Paul, Minority Leader Mitch McConnell, Tennessee republicans Bill Hagerty and Marsha Blackburn, West Virginia democrat Joe Manchin, Kansas republican Roger Marshall, and Alaska republican Katie Britt.
“Spirits have had a significant cultural impact in our country, and currently have a profound impact on the US economy. In 2022 alone, US distilled spirit exports reached $2.06 billion. But the impact of the retaliatory tariffs was devastating… Our belief is that the imposition of additional tariffs on this industry is detrimental,” the senators wrote.
“There are mutual benefits in finding a path forward, and our belief is that spirits and wines are a point where there can be consensus to limit the damage for all parties.”
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