Nvidia Stock At $174: Sell After An 18% Drop

More on the AI trade: our AI storyline page collects our pieces on AI stocks.

It's the morning after Veterans Day. Coffee in hand, you open your 401(k) app out of habit. The total is lower than last week, and the reason sits near the top of your index fund's holdings: Nvidia closed Tuesday at $168.89, down 18.3% in five trading days. It rose 2.9% on Wednesday, to $173.73. Before deciding anything, ask how much Nvidia you really own, through every fund at once (How much Nvidia do you really own?). We'll come back to it.

Why did it fall? Two blows, one week. On Thursday, Nov 5, an AI chip selloff knocked Nvidia down 9.3%, from $200.13 to $181.60. Then on Sunday, Nvidia's board said it is investigating whether CEO Jensen Huang was the target of a foreign intelligence effort. The board said it has no reason to believe Nvidia's secrets were compromised, and that it has confidence in Huang. On Tuesday, with the board's inquiry still open and the Labor Department's hotter October inflation report reviving talk of a Fed hike, the stock fell another 5.5%. On Wednesday evening, The Wall Street Journal reported the board was preparing to oust Huang. The stock fell about 8% in after-hours trading, and the board met late into the night; no decision had been announced by early Thursday.

That 18% week is a stress test, run early. For families with seven figures invested, Nvidia sits in the index funds and the 401(k) too. Would your plan survive another 18%? A free 15-minute call with a Trefis partner firm can run it.

Source: Trefis, prices through Nov 11.

What Did Nvidia Do After Every Week Like This?

Not a few memorable cases: all of them. We pulled every five-day fall of 15% or more in Nvidia since 2003, counting each fall once a month.

Source: Trefis, prices through Nov 11. 28 weeks, including this one; 27 have a full year behind them. The S&P 500's median over the same years was +16.1%.

Two things are true at once. The year after was usually good. But the week was rarely the bottom: the typical further low came in 16.1% below the trigger. From $181.60 on Nov 5, when this fall first passed 15%, that would be about $152.

And the bad cases were very bad. After the falls of November 2007, January 2008 and February 2008, Nvidia was down 74%, 66% and 66% a year later. August 2003 led to −31%, October 2018 to −20%. Seven of 27 ended the year lower. For how low the AI trade could go this time, see Nvidia stock to $129?

Where Do The Desks Meet?

This week sits on three desks. On the people desk, it is key-person risk: few $4 trillion companies are as tied to one founder, the question we asked in Is Nvidia stock now a bet on Jensen Huang? Three House Republicans have invited Huang to a briefing on Nov 18. On the macro desk, hotter inflation can mean higher rates, and higher rates cut what investors pay today for profits years away. On the AI desk, the board's inquiry so far is about Huang, not demand for Nvidia's chips.

We live in decades. Why worry about the next ten minutes like a fruit fly?
- Anonymous

So, Is It A Reason To Sell?

Position, not prediction. Selling after an 18% week is the reactive move. Over 23 years, that has more often missed a gain than escaped a crash: a year later Nvidia was higher in 20 of 27 such weeks. A plan does three things instead.

Size it from the worst case. If losing 1-3% of your portfolio on one stock is your limit, a repeat of the 74% year means holding Nvidia at about 1.4-4% of everything you own, index funds included.

Commit at a price. Want more? Name the study's further-low level now. A cash-secured $150 put expiring Jan 15 paid about $4.95 a share at Wednesday's close (midpoint of the bid and ask), an effective price near $145, 16.5% below that close. If Nvidia ends below $150, you buy at $150.

Watch, then revisit. The Nov 17 report, after the close, what the board decides about Huang, and what its inquiry finds. If Huang goes, or the inquiry finds secrets were compromised, the business changed. Until then, only the price did.

Would Your Plan Survive Another 18% Week?

The full record says a week like this is common; it doesn't say which kind this one is. For families with seven figures invested, a stress test of your total Nvidia exposure takes a free 15-minute call with a Trefis partner firm.

For questions about this article or underlying research, email [email protected].