The thrill of victory and the agony of defeat.
Regular viewers of ABCs The wide world of sports heard the late Jim McKay say these words for decades. Although McKay was referring to athletes, his phrase can also apply to stocks – including NVIDIA (NASDAQ: NVDA).
In recent years, Nvidia has enjoyed “the thrill of victory” as its stock soared along with demand for its graphics processing units (GPUs). But more recently, Nvidia has felt “the agony of defeat” as its stock plummeted.
However, I don’t think Nvidia will hold this bad taste in its mouth for long. I expect Nvidia stock to rise more than 20% by the end of 2024 after the big sell-off.
Factors behind Nvidia’s sharp decline
Before I explain the reasons for my prediction, let’s first look at the factors behind Nvidia’s steep decline. Some of them are company-specific, but not all of them.
In July, Bloomberg News reported that the Biden administration was considering imposing further restrictions on semiconductor equipment exports to China. Former President Donald Trump also said in an interview with Bloomberg Businessweek that Taiwan should pay the U.S. for its defense. Both stories sent chip stocks tumbling.
Disappointing July employment numbers in a report released on August 2 fueled fears of a potential recession in the U.S. Nvidia shares fell as the news weighed on the broader stock market.
The market was shaken even more by the Bank of Japan’s interest rate hikes. This move had global repercussions as some investors borrowed money in Japan to take advantage of low interest rates and then invested the borrowed money in US stocks (including Nvidia), which is known as a “carry trade”.
Around the same time, it was revealed that the launch of chips based on Nvidia’s new Blackwell architecture could be delayed by three months. The Information, a website focused on the technology sector, reported that Nvidia had discovered a design flaw that caused the delay.
How Nvidia can recover
Why do I expect Nvidia stock to recover after all this bad news? First, the news is not as bad as it may seem at first glance.
So far, the Biden administration has not imposed any further restrictions on exports to China. It is unclear whether Nvidia would be affected even if changes were implemented. The disappointing July jobs report was followed a few days later by lower-than-expected weekly unemployment numbers, easing concerns about a recession.
JPMorgan Chase & Co. Analysts estimate that around 75 percent of the carry trades affected by the interest rate hike in Japan have been settled. In other words, the worst is over.
Any delay in shipping the new Blackwell chips would hurt Nvidia’s revenue growth. The good news is that the impact would be temporary.
Importantly, Nvidia will provide its fiscal 2025 second quarter update on August 28th. I expect the company to once again beat Wall Street estimates by a wide margin. I also think it’s likely that Nvidia will announce a firm date for when Blackwell shipments will begin, not too far in the future. The Q2 update could (and will, in my opinion) clear the way for Nvidia shares to continue their upward trend.
Nvidia’s forecast could also reassure investors. alphabet, Amazon, MicrosoftAnd Meta-platforms stated in their latest quarterly reports that they plan to invest heavily in AI infrastructure. This should mean higher revenues for Nvidia.
Finally, many analysts and economists expect the Federal Reserve to cut interest rates in September. I believe so too. And I think it’s quite possible that this rate cut could be a catalyst for the stock market and help drive Nvidia’s share price higher.
The biggest threat to my prediction
I expect the U.S. economy to remain relatively strong, but if the economy falters (and especially if there are signs of a recession starting), anything is possible. If that happens, Nvidia stock is unlikely to rise 20% or more by year’s end, as I predict.
However, the latest weekly unemployment figures and the increasing likelihood of interest rate cuts in the near future strengthen my confidence. I am sticking with my prediction for Nvidia. We will find out in a few months whether I am right.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, JPMorgan Chase, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Forecast: Nvidia to rise over 20% by the end of 2024 after the big sell-off was originally published by The Motley Fool
