Unpacking the Nvidia Stock Pullback

The FTC is suing to block Nvidia from acquiring Arm

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Nvidia Corporation (NASDAQ:NVDA) is one of our favorite stocks to talk about over here at Schaeffer's. We've covered the stock 40 times in 2021, and its usually been all positive. Today though, NVDA is down 5.4% to trade at $303.91, falling victim to the broader tech pullback.

This comes after news broke yesterday that NVIDIA is being sued by the Federal Trade Commission (FTC) of the United States to prevent NVDA from acquiring British tech provider Arm. According to the FTC Bureau of Competition, "The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies."

First, the bad news; this is poised to be NVDA's worst single-session since March 8, and its second-straight weekly loss. The shares are poised to breach their 20-day moving average, for the first time since Oct. 14. Now, the silver lining; NVDA remains up 133% year-to-date. 

Stock Chart NVDA

From a fundamental point of view, Nvidia stock continues to be an intriguing investment despite its extremely high valuation, with a forward dividend of $0.16 with a dividend yield of 0.05%. The semiconductor company has reported high top and bottom line growth numbers over the past two years, which has led Nvidia stock to rally this year, subsequently pushing NVDA's valuation up to its current highs. Nvidia stock also now trades at an inflated price-earnings ratio of 99.06 and price-sales ratio of 34.83.

Nonetheless, Nvidia stock is expected to continue growing at a considerable rate, given its forward price-earning ratio of 64.94. The chip company has also grown revenues 46% since fiscal 2020 and 122% since fiscal 2019. On the bottom-line, NVDA has grown its net income 89% since fiscal 2020 and 193% since fiscal 2019. In addition, Nvidia is in a great position to continue expanding with $19.3 billion in cash and $11.8 billion in total debt on its balance sheet.

We'll finish with a note about options; the equity's Schaeffer's Volatility Scorecard (SVS) stands at 82 out of 100. This suggests NVDA has exceeded options traders' volatility expectations during the past year.


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