The thrill of victory and the agony of defeat.
Regular viewers of ABC's Wide World of Sports heard the late Jim McKay utter those words for decades. While McKay referred to athletes, his phrase can also apply to stocks -- including Nvidia (NVDA +1.23%).
Throughout much of the past few years, Nvidia has enjoyed "the thrill of victory." Its shares skyrocketed along with the demand for its graphics processing units (GPUs). More recently, though, Nvidia has tasted "the agony of defeat" somewhat with its stock sinking.
However, I don't think Nvidia will have this taste in its mouth for long. I predict Nvidia stock will jump by more than 20% by the end of 2024 after its big sell-off.
NASDAQ: NVDA
Key Data Points
Factors behind Nvidia's steep decline
Before I explain the rationale behind my prediction, let's first look at the factors behind Nvidia's steep decline. Some are specific to the company but not all of them.
In July, Bloomberg News reported that the Biden administration was considering imposing further restrictions on exports of semiconductor equipment to China. Former President Donald Trump also told Bloomberg Businessweek in an interview that Taiwan should pay the U.S. for defending it. Both stories caused chip stocks to fall.
Disappointing July employment numbers in a report released on Aug. 2 stoked fears of a potential U.S. recession. Nvidia's shares fell as this news weighed on the broader stock market.
The market was rattled even more by the Bank of Japan raising interest rates. This move had a global impact because some investors had borrowed money in Japan to take advantage of low rates and then invested the borrowed money in U.S. stocks (including Nvidia) in what's called a "carry trade."
Around the same time, news broke that Nvidia's launch of chips based on its new Blackwell architecture could be delayed by three months. The Information, a website focused on the technology sector, reported that Nvidia found a design flaw that caused the delay.
How Nvidia can rebound
Why do I predict Nvidia stock will rebound in the wake of all of this bad news? For one thing, the news isn't as bad as it might seem at first glance.
So far, the Biden administration hasn't placed any further restrictions on exports to China. It's unclear if Nvidia would be impacted even if changes are implemented. The disappointing July jobs report was followed by lower-than-expected weekly jobless claims a few days later, easing concerns about a recession.
J.P. Morgan analysts think that roughly 75% of the carry trades impacted by the rate hike in Japan have been unwound. In other words, the worst is over.
Any delay in shipping the new Blackwell chips would hurt Nvidia's sales growth. The good news is that the impact would only be temporary.
Importantly, Nvidia is scheduled to provide its fiscal 2025 Q2 update on Aug. 28. I expect the company will again handily beat Wall Street estimates. I also think it's likely that Nvidia will give a firm date for when Blackwell shipments will begin that isn't too far into the future. The Q2 update could (and I think will) clear the deck for Nvidia's shares to resume their upward climb.
Nvidia's guidance could also reassure investors. Alphabet, Amazon, Microsoft, and Meta Platforms said in their recent quarterly updates that they plan to spend heavily on AI infrastructure. That should translate to higher sales for Nvidia.
Finally, many analysts and economists expect the Federal Reserve will cut interest rates in September. I do too. And I think it's quite possible this rate cut could be a catalyst for the stock market and help push Nvidia's shares higher.
The biggest threat to my prediction
I'm assuming that the U.S. economy will remain relatively strong. But should the economy stumble (and especially if there are signs that a recession is beginning), all bets are off. If this happens, Nvidia stock probably won't rise 20% or more by year-end as I predict.
However, the latest weekly jobless claims and the increased likelihood of rate cuts in the near future bolster my confidence. I stand by my prediction about Nvidia. We'll find out in a few months if I'm right.
