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Even tech stocks like Nvidia need to take a break: Analyst

The broader market has been in flux with the tech-heavy S&P 500 (^GSPC) down for the last trading week. Recent geopolitical tensions in the Middle East haven't been the sole detractor from 2024's market momentum. One of the leaders in the S&P is chip-making powerhouse Nvidia (NVDA) which is down 15% over the past month. Is the rally for Big Tech players over or just on a pause?

F/m Investments President and Chief Investment Officer Alex Morris joins Market Domination to discuss the chip sector and Nvidia's recent dip in share price.

Morris weighs in on the current market landscape and how Nvidia has performed recently: "It's surprising to see it today. There's no great catalyst for it. Nvidia didn't come out and say 'we're out of the game, AI is over.' But we have to remember Nvidia, Microsoft (MSFT), Big Tech names, they're momentum names and momentum names occasionally need to take a breather... The geopolitical events aren't the catalyst but they are a good opportunity for folks to reevaluate where their money is and sometimes you take your profits."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

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This post was written by Nicholas Jacobino

Video transcript

MADISON MILLS: Throughout the trading day, as Julie was smartly pointing out, we've seen this story change a little bit from what's going on geopolitically to what's going on specifically with chips and, of course, the tech sector. This decline with Nvidia down over 9%, does that surprise you at all?

ALEX MORRIS: It's surprising to see it today. There's no great catalyst for it. Nvidia didn't come out and say, we're out of the game. AI is over.

[LAUGHTER]

But we have to remember, Nvidia, Microsoft, big tech names. They're momentum names, and momentum names occasionally need to take a breather. I mean, it's-- Nvidia has had a pretty dramatic run. If you go back a month, you could look at almost any time frame for the last three years, and Nvidia has had a tremendous positive run.

These need to take a chance to stop. The geopolitical events aren't the catalyst, but they are a good opportunity for folks to reevaluate where their money is, and sometimes you take your profits. And in Nvidia's case, if you bought it two years ago, you have a lot of profits to take.

JULIE HYMAN: At the-- by the same token, you did have the likes of ASML and Taiwan Semi also kind of spooking the tech trade this week. Do you think that those are fundamental reasons that the sell-offs happen, or do you do you come back to that momentum idea?

ALEX MORRIS: I don't have any reason to believe there's other fundamental items at play, but there's momentum and there's rates. The problem with many big tech names is we still think about them as discounted cash flow-based companies. So we hear rates are going to stay high, therefore we reduce the price of these big names.

But I've never seen a DCF model that's right. If someone can show me one, I'll happily invest all my money with them. So I think we're seeing some old thinking but also the ability to take big profits. We probably wouldn't see this if those numbers were much more muted over the last 12 months.

MADISON MILLS: What does that tell you going into this earnings cycle, then? Are these names sort of priced to perfection, or is that over given the sell-off that we're starting to see?

ALEX MORRIS: I suspect they probably are giving themselves some room to go back up. It's probably going to do less with earnings themselves and more to do with how we set and manage expectations. Those names in general, when they surprise on the downside, all take about a 15% hit over a day or two, and then they slowly recover. But if you lower expectations, even if you crush earnings, you're going to get crushed the next day and probably continue to get crushed for the next month or two. So we'll see how effective management is at managing the market.