After a huge run-up in price this year, the chip stocks are being sold off. Apparently, the valuations just got too high to handle so profit taking is happening now. Money is flowing into areas like drugs, realestate, utilities, defense contractors, and consumer staples. Companies like Nvidea, Microsoft, Apple, Amd, Tesla, Amazon, and Alphabet are giving back some of their gains for the year. The grandaddy of them all is Nvidea because they make the chips that drive the AI revolution.With a current trailing PE ratio of 51X Nvidia on the surface is priced to perfection. However, it is estimated that over $300B will be spent on AI over the next few years and most of that goes to Nvidia.
Unfortunatly, I don't own Nvidia but I think I will get my chance soon. Today alone it lost 10% of its value and that trend will probably continue because some investors have made so much money they will lighten-up on tech and redeploy assets to safer, more value oriented stocks. Over the last 5 years, early investors in Nvidea have increased their principle over 30X so it only makes sense to take some profits. Also September is historically a volatile month for stocks and the set-up with a stressed consumer, disapointing earnings forcasts, and a Fed that is late to cut rates could add to the volatility.
While others are redeploying cash to other areas of the market (which have run-up in price) I will wait for a chance to enter the AI theme which I believe is only still in the first inning. With a stock market that is not expected to perform well for the rest of the year, it is important to stick with the best companies in each sector. I think Nvidea fits that narrative. I have never done well chasing a high flying stock so I'm watching for when the chips are down.
