Stocks to buy

On Friday, Oct. 7, Advanced Micro Devices (NASDAQ:AMD) issued a PC market and revenue warning that was so scary, it dragged the entire Nasdaq down. This weighed heavily on Nvidia (NASDAQ:NVDA) stock, and so did new U.S. rules restricting certain tech-component exports to China. However, Nvidia doesn’t anticipate that these rules will have a significant impact on the company’s business. All in all, the market’s response seems overstated, and this opens up an opportunity for contrarian investors.

You’ve heard the old saying: Buy when there’s blood in the streets. In hindsight, it’s always obvious that you should have bought the shares that everyone else was panic-selling. This is easier said than done, though, as emotions take over and roundly despised stocks don’t necessarily look like bargains during times of peak pessimism.

Thus, it will take a strong stomach and an iron will to dip-buy NVDA stock now. If you can peer into the pit of despair and buy shares when other traders are freaking out, though, then Nvidia (and, indirectly, AMD) may have just handed you the chip-market opportunity of a lifetime.

What’s Happening With NVDA Stock?

After already having lost much of their value in 2022 so far, Nvidia shares shed another 8% on Oct. 7. This happened even though there wasn’t any negative Nvidia-specific news on that day.

There was AMD-specific news, but we’ll get to that in a moment. First of all, we have to acknowledge that the U.S. government reportedly imposed a fresh round of restrictions on “some U.S.-made semiconductor manufacturing equipment to China.”

Note that it’s “some,” not all. Besides, Reuters clarified that U.S. officials “provided exemptions for companies from the United States and its allies to seek a license.”

The new restrictions mainly pertain to supercomputers with a certain number of “petaflops” (no, I’m not making this up) of computing power. In any case, Nvidia promptly reassured its stakeholders that the company doesn’t “expect the new controls, including restrictions on sales for highly dense systems, to have a material impact on our business.”

AMD’s Warning Put Undue Pressure on NVDA Stock

Sometimes, traders call it the sympathy effect. I’m referring to times when one company’s stock declines sharply, causing same-sector stocks to also lose value.

These sympathy-effect price moves can be excessive. Frankly, there was no need for NVDA stock to lose a whopping 8% on Oct. 7. Sure, Advanced Micro Devices CEO Lisa Su acknowledged that the PC market had “weakened significantly” during 2022’s third quarter. Is this really a surprise to anyone who’s been paying attention, though?

AMD anticipates third-quarter revenue of around $5.6 billion. This is below the company’s previous estimate of $6.7 billion, plus or minus $200 million.

Yes, that’s disappointing for AMD’s investors. It doesn’t mean that everybody and their uncle has to dump their Nvidia shares. These are two different companies.

What You Can Do Now

I might sound frustrated, but I actually like it when the sympathy effect causes traders to irrationally sell shares of great businesses. Nvidia is still a premier GPU manufacturer, and the recovery in NVDA should be powerful, when it happens.

There’s no way to predict when the turnaround will take place, though. So, intrepid Nvidia investors will just have to hold their noses and hold on for dear life. Eventually, the market should come to its senses and learn to love this downtrodden chipmaker again.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

Articles You May Like

My Top 10 Stock Market Predictions for 2025
Starboard sees an opportunity to create value at Riot Platforms amid growth in hyperscalers
Nvidia sees ‘remarkable’ influx of retail investor dollars as traders flock to AI darling
Top Wall Street analysts recommend these dividend stocks for higher returns
Quantum Computing Revolution: The Gargantuan Opportunity Investors Shouldn’t Ignore