Shorting Nvidia Stock at this time is discouraged due to its strong performance, low shorting interest, and potential to shift to even better perspectives.
- Shorting Nvidia Stock carries significant risks due to the company’s track record of surpassing market expectations and its position as a technology leader.
- Despite high market expectations for Nvidia’s Q1 earnings, shorting interest remains low, reflecting market confidence in the company’s performance.
- Investors are advised to exercise caution when considering shorting Nvidia and may find more prudent opportunities to monitor the company during market corrections.
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After a period of ups and downs in recent months, Nvidia (NASDAQ: NVDA) stocks are back in the spotlight. They have reached and even exceeded their historical price, currently trading near $913.
But with the first-quarter earnings release looming, the question arises: would it be a good idea to short Nvidia at this point, considering reasons such as overvaluation and potential earnings missing? Let’s take a closer look.
Q1 Earnings Quick Preview
Market expectations regarding Nvidia’s earnings are already high. The company anticipates strong revenue growth in the Data Center sector, offsetting a seasonal decline in gaming, and robust gross margins.
Company Guidance:
- Revenue: $24.0 billion, with a margin of error of 2%
- Gross Margins: 76.3% GAAP and 77.0% non-GAAP, with a margin of error of 0.5%.
Market Consensus Estimates:
- Revenue: $24.46 billion
- Gross Margin: 77%
- Adjusted EPS: $5.56, a QoQ increase of 7.7%, and a YoY increase of 409.8%.
It’s worth noting that, in the most recent period (the last few months), there have been few adjustments (increases) to market estimates, as shown in the chart below.
The market is already projecting results beyond the company’s expectations, further increasing anxiety and suspense surrounding the Q1 outcome. This is similar to last quarter, when the entire market awaited the results as earnings could dictate not only the company’s course but also influence capital market sentiments overall.
Even with all this hype and high expectations, it seems very unwise to say that Nvidia will miss the estimates. Its track record is very strong, and the AI momentum seems to be holding, as indicated even by the META (META) earnings.
Is Shorting Nvidia Stock Worth It?
At present, Nvidia’s short interest is around 1.08%, a notably low level. This reflects the market’s confidence in the company’s earnings and reluctance to bet against it. It’s worth remembering that there was also a strong volume of Nvidia options traded in the last earnings, reaching about $3 billion.
The current low intention to short Nvidia can be attributed to various factors, including the significant risk involved. Nvidia has consistently outperformed market consensus estimates, even the already high ones. Moreover, shorting is an inherently risky strategy – even if your analysis is correct, poor timing can lead to significant losses.
In terms of valuation, despite the recent recovery, Nvidia still seems far from being a bubble. Its NTM P/E of 36x and approximately 24x for FY 2027 suggest that stocks are priced with a justifiable “premium” for a leading technology company. Even through a conservative DCF analysis, a fair price is found with a relatively small downside, suggesting that Nvidia, at a level where it can generate all the expected cash for the next few years, would be able to remunerate its shareholders at a reasonable IRR (close to 9%~10% per year). Despite this, this DCF corroborates my view that even though it is not expensive and could positively surprise (“upside risk”), there is a low margin of safety.
Another factor to consider is Nvidia’s unique position at the forefront of AI technology. As a leading company in one of the most important industries today, Nvidia has solid fundamentals and is constantly innovating. Just as Tesla has demonstrated, a company with this strategic position can quickly change market sentiments, in Nvidia’s case, through news that perpetuates growth for longer periods, such as announcements of new partnerships, products, disruptive technologies, growth avenues, and so on.
The Bottom Line
In summary, shorting Nvidia at this time does not seem prudent. The risk-return asymmetry is not favorable, as even though there may be short-term corrections, the company is not excessively expensive and is proving to be extremely robust, both in fundamentals and stock price (capital flow).
Its unique position in the industry and consistent track record of exceeding expectations (and bringing better perspectives) make betting against the company a high-risk strategy. Therefore, it may be wiser for cautious investors to closely monitor Nvidia, even considering potential buying opportunities if there are interesting corrections instead of venturing into the volatile territory of pessimistic bets.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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