Nvidia (NASDAQ: NVDA) will be reporting earnings on 8/12. Given its recent decline, the news is unlikely to be very good. However, with a contrarian thought in this case, our trading group thinks getting long on the stock can make sense here. However, things can go very wrong on NVDA, and therefore we definitely want protection for ourselves.
Below is a chart of Nvidia NVDA comparing with the Semiconductor HOLDRS SMH for the past year. As our readers can see, it's not a pretty picture.
Nvidia's weakness is mainly due to its product cycle problems, and its most recent weakness is mainly due to its lowered revenue guidance by > $100 million. That was quite a surprise for a lot of analysts, and expectations were dramatically lowered.
With such bad outlook, why would we want to take a long position on Nvidia? A couple of reasons:
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- Nvidia has a very strong balance sheet, so the financials are still intact for the company.
- NVDA has a product cycle problem, but this is well known, and no one is expecting them to suddenly get better.
- There are only a few companies left in the high-end graphics chips market, and Nvidia is definitely a survivor and market leading candidate in this space.
- Intel just settled with FTC on the antitrust lawsuit filed by AMD and Nvidia. This may provide some fuel for some good news on NVDA's and AMD's side.
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