The FED-fueled sell-off abruptly halted the tech bull run and has caused investors to rethink their strategies. Nvidia was among the many stocks that took a hit yesterday. This has prompted many to wonder if the resulting dip can be considered a buying opportunity or a falling knife. Paul Meeks, the Co-Chief Investment Officer at Harvest Portfolio Management, believes one can’t be sure, but it could be worth it to pause and reconsider the AI outlook before making a decision.
Meeks cited Micron’s NAND memory segment’s poor performance as the reason for his pessimism. Micron announced its quarterly report yesterday and traders got out after listening to the guidance. The company expects sluggish demand for its chips which go into smartphones, personal computers, and many industrial applications. This proves that demand for semiconductors outside of AI spending, which itself is dominated by the Big Tech, is quite low.
This prompts one to ask a very important question. What happens if AI spending slows down too? Paul Meeks believes at some point in the next year, the market could digest this possibility resulting in a big correction. That’s his reason for being cautious.
In other words, Paul isn’t yet sure if this is just a dip. He recommends keeping some cash in the bag in case the correction continues. It might also be worth waiting for the revised spending plans of the Hyperscalers, who are responsible for a good chunk of the AI spending that Nvidia benefits from. For that, investors will have to wait till the end of January when these companies announce their earnings.
We believe Paul raises important points about Nvidia’s short-term movements and going by the current pessimism surrounding the market, it could be worth staying out for a month or so till the AI spending trend becomes clearer.
Nvidia is 5th on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 193 hedge fund portfolios held NVDA at the end of the third quarter which was 179 in the previous quarter. While we acknowledge the potential of NVDA as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.