Nvidia Is On The Brink of 20% Crash In a Single Day

By Marc Lichtenfeld 

On Monday, Charles Schwab released its monthly trading activity data, including a list of the most heavily bought and sold stocks in the month of February.

The most-bought stocks are the ones you’d expect: Nvidia (Nasdaq: NVDA), Alphabet (Nasdaq: GOOGL), Advanced Micro Devices (Nasdaq: AMD), Super Micro Computer (Nasdaq: SMCI) and Arm Holdings (Nasdaq: ARM).

No surprises there.

All of them are tech stocks that are involved in the production of semiconductor chips, and all of them have hit or nearly hit their all-time highs since January 26.

The most-sold stocks included The Walt Disney Co. (NYSE: DIS), Palantir Technologies (NYSE: PLTR), Marathon Digital Holdings (Nasdaq: MARA), Ford (NYSE: F) and General Motors (NYSE: GM).

Interestingly, all but Ford traded at or near 52-week highs in February, and Ford traded at its highest level since early August. The stock is up 33% from its lows in October.

So retail investors are buying white-hot stocks that are at all-time highs and selling stocks with lots of potential upside. That’s typical retail behavior.

Now, that’s not to say Nvidia can’t go higher. It certainly can, and it seems to every day.

But investors are better off buying the stocks that everyone else isn’t buying – the ones being ignored.

And Wall Street certainly isn’t ignoring the most-bought stocks. Analysts overwhelmingly have them rated as “Buys,” while only two stocks on the “most-sold” list (Disney and GM) have primarily bullish ratings.

Remember, in analyst speak, “Hold” means “sell,” and “Sell” means “run away from this dog as fast as you possibly can and don’t look back.”

This shows you that Wall Street analysts are no better at picking stocks than Jane and Joe Investor. A whopping 50 (yes, 50!) out of 55 analysts are saying to buy Nvidia at all-time highs after a 290% gain in the past year and a 705% gain over the past year and a half.

Sure, it could go higher still, but when that many analysts – along with millions of retail investors – are all leaning heavily in one direction, it makes me believe the stock is close to running out of gas.

I know Nvidia just reported a great quarter. But what happens if it releases disappointing numbers next quarter? With all of those uber-bullish analysts and investors starting to jump ship, the stock would be down 20% in a day.

On the other hand, 14 of the 18 analysts covering Palantir Technologies have given it a “Hold” or “Sell” rating. If Palantir were to miss on earnings, it likely wouldn’t affect the stock much because the sentiment around it is already so bad.

But imagine if the company were to report a great quarter and raise guidance. That would catch the bearish analysts off-guard and force them to boost their estimates and possibly their ratings. That’s how upgrades and downgrades can be catalysts for stock moves.

Analysts and retail investors are notoriously late to the party. They recommend and buy what’s hot, and they avoid and sell what’s not. But they should be doing exactly the opposite: selling the popular stocks and picking up bargains on quality stocks that others don’t want.

The overwhelming bullishness on chip stocks makes me believe we are in the later innings of this move and that there are better buys out there.

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