As Predicted, The Nvidia Recession Is Happening!

Earlier this month, on June 11, we discussed the impending Nvidia recession in this article. The signs were clear, and the market dynamics were shifting. Now, those predictions are coming to fruition as Nvidia faces a significant downturn.

What's Happening to Nvidia?

Despite Nvidia's impressive performance in recent years, a recent trend has emerged that should give investors pause: some of the top billionaire investors and hedge funds are selling Nvidia stocks. According to hedge-fund tracker WhaleWisdom, more hedge funds reduced their positions in Nvidia than increased them in the first quarter of 2024. Specifically, 207 hedge funds increased their holdings in Q1, down from 269 in the previous quarter, while 336 hedge funds reduced their stakes. Notable investors like Ken Griffin of Citadel, Israel Englander of Millennium Management, and Paul Tudor Jones of Tudor Investment Group are among those selling their Nvidia shares. This shift indicates a growing sentiment that Nvidia's stock may have reached its peak and that the risk-reward balance is tipping.

This mass exodus of high-profile investors has resulted in a sharp decline in Nvidia's stock price. The company's three-day, $430 billion selloff has pushed Nvidia shares into a technical correction for the first time since April. This correction, defined as a drop of 10% or more from a recent peak, has traders turning to technical analysis for clues on where the bottom may be.

What Is Required for a Rebound vs. What Can Cause It to Further Plummet

For Nvidia to rebound, several factors need to align. Firstly, a renewed surge in demand for its products, particularly in the AI and data center markets, would be crucial. Nvidia has soared this year amid unrelenting demand for its chips that dominate the market for artificial intelligence computing. However, sustaining this demand is essential for a recovery. Additionally, broader market conditions and economic stability will play a significant role. If the overall tech sector shows resilience and growth, Nvidia could benefit from this upward trend.

Conversely, several factors could cause Nvidia's stock to plummet further. The departure of big-name investors has already created downward pressure, and if more investors follow suit, the stock could face additional declines. Technical analysts like Buff Dormeier see short-term support around the $115 level, with the next significant level at $100. Breaching these levels could signal more profound trouble. Furthermore, any negative news related to the broader tech market or Nvidia's competitive position could exacerbate the situation.

Probability of Rebound vs. Probability of Further Plummet

The probability of a rebound versus further plummet depends on a mix of internal and external factors. On one hand, analysts like Ari Wald of Oppenheimer believe the longer-term trend remains strong, with Nvidia still trading well above its 50-day and 100-day moving averages. This suggests that while the stock is experiencing volatility, the fundamental growth story may remain intact.

On the other hand, the current market sentiment and technical indicators are less optimistic. The abrupt reversal in Nvidia's stock price, following all the good news, is a concern. This includes the 10-for-1 stock split and briefly becoming the world's most valuable company. The stock's steep climb makes it vulnerable to profit-taking, and analysts warn that any volatility is likely to be short-lived. However, if Nvidia breaches critical support levels, the probability of a further plummet increases.

What Should You Do According To Buffett's Theory?

When considering what action to take, it is wise to recall Warren Buffett's famous advice: "Be fearful when others are greedy, and be greedy when others are fearful." Nvidia's current plight may seem alarming, but it also presents an opportunity for astute investors.

If you believe in Nvidia's long-term growth prospects and the strength of its market position, this downturn could be a chance to buy at a lower price. However, it's essential to remain vigilant and consider the broader market signals. Investors should be prepared for potential short-term volatility and have a clear understanding of their investment horizon and risk tolerance.

For those who are more risk-averse, it might be prudent to wait and see how the market adjusts. Watching for signs of stabilization and a clear upward trend could provide a safer entry point. In any case, staying informed and avoiding panic is crucial.

The Nvidia recession is happening as predicted. While the current downturn is concerning, it also offers potential opportunities for those willing to navigate the volatility. By applying Buffett's theory of greed versus panic, investors can make more informed decisions during this turbulent time.