What’s The Deal With Nvidia?
Nvidia (Nasdaq: NVDA) walks warily down Wall Street, RTX 3060 pulled way down low. Ain’t no sound but the earnings beat — revenue ready to go.
Are you ready? Hey! Are you ready for this? Are you hanging on the edge of your screen?
Out of the earnings call, NVDA stock rips, and the bears they start to bleat … yeah!
Bump. Bump. Bump.
We’re closing in on the halfway mark for 2021, and a clear pattern is starting to emerge for corporate earnings. Beat-and-raise reports — no matter how strong — have largely been greeted by sell-offs. Just like how NVDA stock fell nearly 1.5% on Wednesday after the company released its quarterly report.
I don’t have to tell you, Great Ones, that I’m quickly becoming a fan of the 2021 two-step on Wall Street.
Wait … a fan? You’re a fan of good stocks getting crushed and bad stocks rallying? What kinda sicko are you?
OK, hear me out… Many investors — myself included — have been dying for a chance to buy NVDA stock. The problem is that NVDA keeps rallying, offering few chances for an actual buy-in.
I mean, sure, if you were brave enough, you could’ve bought NVDA stock back in March or even during the week of May 15. Both times, however, NVDA shares looked like they were breaking sharply lower. Just look at the NVDA stock chart below:
See that March break below the 200-day moving average — the blue line? And that nosedive toward the trendline once again in May? Those are hardcore buying opportunities for those with hardcore risk tolerance.
But now… Oh, now, we have solid setup on both the technical and fundamental fronts for Nvidia stock. First, however, let’s look at the possible reason why NVDA shares fell after earnings … right after this quick word from our sponsors.
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Nvidia RTX Off
Anyone else remember the great crypto mining debacle of 2018? NVDA stock plummeted more than 52% from September through December 2018 after Bitcoin miners quit buying Nvidia’s graphics cards.
The remaining bitcoins on the blockchain were getting more and more expensive to mine, and many miners were simply getting out of the biz entirely. That left Nvidia with a massive stockpile of unsold graphics cards.
Those same concerns arose once again last week. During Nvidia’s quarterly report, the company said it raked in $155 million on crypto-specific chips. Unfortunately, those crypto-mining chips are new, and many miners are still buying Nvidia’s traditional graphics cards for mining activities.
This clouds the real impact of crypto miners on Nvidia’s revenue. When revenue sources are hard to nail down … it makes investors nervous, especially those who remember 2018’s sell-off. With investors growing increasingly risk-averse in 2021, that little bit of uncertainty forced NVDA stock lower.
Nvidia RTX On
But what these nervous Nellies ignored is a truly stellar first-quarter earnings report.
Nvidia earnings skyrocketed 108% to $3.66 per share. Revenue surged 84% to $5.66 billion. Both figures obliterated Wall Street’s expectations, which stood at $3.31 per share and $5.41 billion in revenue.
Drilling down deeper, Nvidia’s video game revenue rose 106% to $2.76 billion, while data center revenue jumped an unexpected 79% to $2.05 billion.
If the inability to distinguish crypto revenue from video game revenue made investors nervous, that unexpected surge in data center revenue should’ve dispelled all worries.
I mean, I’m now reconsidering my stance on Intel (Nasdaq: INTC) after Nvidia’s strong data center performance. Intel doesn’t need two upstarts stealing market share in this crucial segment, and AMD was a handful by itself.
What’s more, Nvidia also noted that it’s ramping up crypto chip production — and crypto-handicapping its dedicated graphics cards.
In other words, cards like the Nvidia RTX 3060 and RTX 3090 will no longer be able to mine cryptocurrencies. In doing this, Nvidia is segmenting out its products so it can better assess revenue from the volatile crypto mining market.
In case you were wondering … that’s a good thing! It will help investors and analysts better determine the risk that crypto mining poses to Nvidia’s ongoing revenue.
Speaking of ongoing revenue, Nvidia said it expects second-quarter revenue of $6.3 billion, nearly $1 billion above Wall Street’s consensus estimate. That’s just insane.
Nvidia Arm Wrestling
I wasn’t going to address Nvidia’s acquisition of Arm Holdings, but I feel like any analysis of the company would be incomplete without at least mentioning it. So … here you go.
The Arm deal, assuming it gets past U.K. regulators, will be huge. Arm’s biggest market is mobile processors.
Nvidia doesn’t have much of a presence in the mobile market. That added market exposure and revenue will be massive for Nvidia. But it’s just the icing on the cake.
Arm is already making headway in the data center market, which should dovetail extremely well with Nvidia’s gaining presence in the sector. And Arm is a market leader in artificial intelligence, which also plays extremely well with Nvidia’s ambitions.
As Wall Street analysts would say: “The deal should realize considerable synergies and cost savings that will contribute greatly to Nvidia’s bottom line” … or something like that.
That said, I’m not factoring in the Arm deal until after stodgy U.K. regulators have had their say…
How To Trade NVDA Stock
Finally, the moment you’ve all been waiting for: How to trade NVDA stock!
Last week’s post-earnings dip offered up a critical buying opportunity. NVDA shares sold off following a stellar report due to cryptocurrency nervousness. The fools!
NVDA stock will rebound quickly from this minor setback … if it hasn’t already by the time you read this.
The most logical course of action is to buy Nvidia shares. And that’s what we’re going to do. Let’s make it an official Great Stuff Picks recommendation:
Buy NVDA Stock.
Now, since this is a special weekend edition of Great Stuff … I’ve got a treat just for you Great Ones who made it this far … and it involves options!
So, let’s say you want to buy NVDA stock, but you’d like to pay less for the shares than the roughly $630 they trade for right now. After all, picking up NVDA for $600 would be a steal … if you get lucky.
Now, you could add an alert to your trading software or portfolio to notify you when NVDA stock hits your buy target. This is pretty standard. It’s what most investors do.
But you’re Great Ones! You’re not like most investors. What if I told you that you could set your buy target and get paid to do it!
Now you’re talking, Mr. Great Stuff! But, like … how?
By selling NVDA put options, that’s how. When I was writing this article, the NVDA June $600 put traded with a bid price of $10.70. The bid price on an option is what the option is selling for at that moment, while the ask price is the cost to buy that option.
Right now, we’re only concerned with the bid price. Keep in mind that this price will not be the same by the time Tuesday rolls around.
So, you can sell the NVDA June $600 put for $10.70, right? Well … there’s this quirk with options where they’re quoted for an individual share of the stock, but all options contracts are for 100 shares. In other words, that $10.70 becomes $1,070 when the option is sold.
Rule of thumb: When pricing options, always multiply the quote you see by 100 to get the actual cost or credit.
By selling the June $600 put, you agree to buy 100 shares of NVDA for $600 each. In exchange, you pocket the $1,070. Boom! You just got paid to name your price on NVDA stock.
Now, if NVDA trades at or below $600, you will need to buy 100 shares at that price — so be ready to pay up. This is the outcome we wanted, after all.
However, if NVDA doesn’t trade below $600, the option will expire worthless … and you get to keep the $1,070 Scott-free!
Hold up. Expire?
Yes. Options contracts have a time limit or an expiration date. The NVDA June $600 put expires on June 18. So, you have until June 18 for NVDA to trade below $600, so you can buy the shares. If that doesn’t happen, you keep the $1,070 you sold the option for.
The best part? If you don’t get to buy NVDA for $600, you can repeat this strategy in July, August, September, etc. — all the while getting paid to name your price. Easy peasy. But could trading options get even simpler than this?
Pssh… Yeah, if you know the right folks (wink wink, nod nod). It’s no exaggeration to say that Mike Carr is one of the world’s most experienced options experts. Only a guy with his level of genius could come up with something like this.
The returns last year were absolutely phenomenal — could this year’s be just as good?
I told you: It pays to read every issue of Great Stuff!
Until next time, stay Great!
Editor, Great Stuff