Stocks Aren't Supposed to Be This Way
Dear subscriber,
I get that we're dangerously close to renaming This Week on Wall Street to This Week in Nvidia. But I've got some data that I just have to share...
Nvidia (NVDA) worries me and others here at Stansberry Research.
It hasn't always been that way, of course. Our technology analyst Dave Lashmet recommended Nvidia way back in 2016 to his Stansberry Venture Technology readers... when it traded for just $1.13 per share (split adjusted).
He closed the position in 2022 for a gain of more than 1,400%.
Perhaps most impressive, Dave didn't recommend Nvidia because of computer graphics – which it was mostly known for at the time – but instead for its AI-processing potential.
Here's what he told Venture Technology subscribers at the time of his recommendation...
The bigger picture [for Nvidia] is that lots of systems can now become "self learning." These machines will range from robots on an assembly line to refrigerators that order more milk to be delivered to your door when you're close to running out.
Machines are learning to think for themselves. This has never happened before. And the world might be forever changed. The upside is that early investors will profit the most...
Today, Nvidia is one of the biggest stocks in the market.
As I covered back in August, it makes up a huge percentage of the popular stock indexes... and therefore a troubling amount of many people's retirement accounts.
I don't know precisely where spending on AI chips will go over the next few months. But I do know that buying stocks like Nvidia that trade at 35 times sales and 64 times earnings has never paid off for long-term investors.
Seeing a large company with such premium valuations reminds me of Cisco Systems (CSCO) back in 2000. And here's how that turned out...
Ah, but you may argue that Nvidia still has upside... and that you're not a long-term investor. Rather, you're smart enough to time a short-term trade in the stock.
Maybe you are. But Nvidia's stock-price movement is incredibly difficult to predict – which brings me to the data I want to share today. (And hat tip to DataTrek Research, where I first saw this.)
As you can see, Nvidia is getting more volatile by the day. The standard deviation of its daily return has risen over the past year, to nearly 3.5%...
It's not supposed to be this way.
As a company grows, its stock is supposed to get less volatile.
Fundamentally, the underlying business should be more stable. Mechanically, it should also take bigger news to move a company like Nvidia, which boasts a market cap of $3 trillion.
This is why Nvidia's volatility is such an anomaly.
And it's not the broader market causing this. Today, Nvidia is four times as volatile as the S&P 500 Index. Just look at the ratio of Nvidia's standard deviation compared with the market's...
Just this week, Nvidia had a 4.7% down day on news of potential chip export limits.
This is truly strange. It may be a combination of Nvidia's lofty valuations and its status as a playground for "retail" investors. But that doesn't seem like enough to explain such high volatility.
For now, you should stick to tried-and-true investments...
You should buy big, stable stocks you can count on to provide good returns.
It still makes sense to buy small, more volatile stocks that have huge growth potential... But Nvidia is already valued at $3 trillion. It can't grow 5 times or 10 times over like a smaller stock could.
In sum, I just don't see where an overvalued, highly volatile, massive stock fits into an investor's portfolio.
I won't change the name of this newsletter just yet, but I'm keeping my eye on Nvidia.
What Our Experts Are Reading and Sharing...
Prediction markets have gone crazy for Donald Trump. They have a "mixed record" of success when it comes to elections, but some do believe the bets are a good predictor of results. After all, it's the wisdom of the crowd. And folks have real skin (i.e., money) in the game. One "whale" is making huge, multimillion-dollar wagers on Trump, pushing his odds of winning from around 48% to more than 60%. The question no one can answer yet... why? Here's the Wall Street Journal with more... and one (unverified) investigation from an X user.
A recent Bloomberg article highlighted an "unusually large" difference between Wall Street and corporate America's third-quarter profit expectations. Companies are forecasting earnings to grow 16% year over year. Wall Street analysts expect only 4.2% growth. That's down from their 7% growth projection in July.
Stansberry Investor Hour welcomed retired U.S. Army colonel Jonathan Shaffner to the podcast this week. He's in the private sector now, but he has a unique perspective on what's going on in Ukraine and the Middle East today... and how investors can better understand government contracting. Check out the interview on YouTube, Spotify, and Apple Podcasts.
Jon will be at the Stansberry Conference & Alliance Meeting in Las Vegas next week. If you haven't yet grabbed your ticket, today's your last chance to buy a Livestream Pass.
New Research in The Stansberry Investor Suite...
Back in 2019, Dr. David "Doc" Eifrig and I made a prediction in an issue of our income-focused advisory Income Intelligence.
We noted that, for some reason, people didn't really buy groceries online...
Do you buy things online? We bet you do.
Do you get your groceries online? The statistics suggest that you don't...
[Grocery] delivery hasn't exactly been "digitized." While about 16% of all retail sales occur online, only about 2.7% of grocery sales in the U.S. do.
But we didn't think that would last for long...
We think this dynamic comes down to some unique elements of the customer experience. We're accustomed to strolling aisles, pondering what we see on the shelves, and choosing our own produce. And that behavior has made people slow to shop for groceries online.
That's changing rapidly...
Years from now, we predict the supermarket will be a rarity, and the bulk of our food will be shipped to us from logistics centers.
Six months later, the pandemic hit. People went on lockdown. And online grocery delivery boomed.
This month's issue of the Stansberry Innovations Report reveals a stock that's a pure play on grocery delivery.
It's profitable... and it has a hidden advertising business that our team believes can really ramp up free cash flow.
The issue also has great insights into the economics of the "gig economy" and the inflection points in consumer behavior that can lead to big opportunities for investors...
The chasm represents the gap that innovative products must bridge to gain traction among mainstream users. For digital grocery shopping, that's set to take place within the next year or two.
Stansberry Investor Suite subscribers can read the entire report here.
If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our new special package of research – click here.
Until next week,
Matt Weinschenk
Director of Research
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