Why Shorting NVDA is a terrible idea!

As of today, April 3rd, 2023, NVIDIA $NVIDIA(NVDA.US)$ Corporation has skyrocketed by almost 90% YTD, and is only 20% away from All-time-high! From chart below, the semiconductor ETF, SOXX, gained 25.7% YTD which outperformed Nasdaq, 15.9% by a beta of 1.6 times. Some might think this semiconductor run was fueled by AI fad, namely ChatGPT, which is not wrong, but there's more than just the AI story, let's dive in.

Many might still live in the scar left from last year's bear market, but few probably remembered the bear market started with semiconductor long before it spread to the rest of the sectors. NVDA peaked at $330 at November 19, 2021. The industry enjoyed the bull run from crypto, data center adoption, EV, and many other industrial applications since COVID. But just like any other fads, many end-market participants went too optimistic to pile up huge inventory. The market was smart enough to sniff out the future massive inventory correction right from the beginning of 2022, which is when the bear market started for semiconductor. However it doesn't seem to be so apparent until Q3. And even until now, you don't even see a dent that the inventory correction has done to companies like ASML and TSMC. That's because those two companies are sitting at the top of the semiconductor chain. But others? Not so good. NVDA's gaming business shrank more than 50% in the recent earnings report. AMD's $Advanced Micro Devices(AMD.US)$ PC segment also were hit as well.

Lastly let's talk about NVDA. Yes, it's driven by ChatGPT and Yes, it trading at 120 P/E ratio. In short term, stock price can overshoot to both upside or downside. Shorting NVDA while it keep ripping higher is exactly why it doesn't stop because the bears continue to add gas to the fire. Last week, Micron $Micron Technology(MU.US)$ reported its Q4 earnings and it was one of the worst in history but the stock went up by 7% the next day on huge volume. This is a sign of marketing bottoming on bad news. All fads don't last forever but no one knows exactly when. Whether one wants to buy, or sell short semiconductor including NVDA, he should have patience to wait for the opportunity to come to us instead of chasing it and short prematurely.