Nvidia, a member of the high-flying NYSE FANG+ index, reported third quarter results yesterday that missed estimates. The stock is down 19% this morning, and over 42% since October 1st.
Why have the shares cratered? Earnings are up 32% over the last year and the outlook remains positive with Goldman saying Nvidia “has access to one of the best growth opportunity sets in semis.”
The problem for Nvidia shareholders, in a word, was price. Early this year, Nvidia traded as high as 60X earnings. Investors buying shares at those levels were forgoing a necessary margin of safety. Without a margin of safety, even a small wave can sink your ship, as it did for Nvidia shareholders over the last month.
Jeremy Jones, CFA
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