Technology stocks hit the skids earlier this week as negative headlines rocked key stocks. Don’t worry too much. It’s not what it seems.
We’ve seen this type of weakness before, and investors that are proactive always reap the benefits.
Tesla, Inc. (Nasdaq: TSLA) and NVIDIA Corp. (Nasdaq: NVDA) represent the cutting edge of artificial intelligence. On Monday, Tesla was slammed by a traffic fatality, and NVIDIA slumped after a planned merger hit a roadblock.
The stocks sold off, taking most of tech along for the ride.
But the selling is overdone … the stories are not what they seem, and tech could begin bouncing back as early as Tuesday.
First, let’s go over some of the big headlines.
The Tesla news was bad: Two Texans killed in a Tesla, nobody sitting in the driver’s seat. The knee-jerk reaction was the electric carmaker’s full self-driving (FSD) software is a dud. Well, not quite. FSD is still in very limited-beta release. Testers are required to stay alert with two hands on the steering wheel. This is tough to accomplish from the passenger seat.
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Late in the day, CEO Elon Musk tweeted that FSD was not involved in the Texas accident.
As for the big NVIDIA news … they have a much different problem. The British government, and almost every major semiconductor firm, wants to kill its proposed $40-billion acquisition of ARM Holdings plc (ARM.F), a British microprocessor designer.
The rub is ARM designs the chip architecture that Apple, Inc. (Nasdaq: AAPL), QUALCOMM Inc. (Nasdaq: QCOM), Advanced Micro Devices, Inc. (Nasdaq: AMD), Amazon.com, Inc. (Nasdaq: AMZN), NVIDIA and others are choosing to use because they’re moving away from 40-year-old Intel Corp. (Nasdaq: INTC) chip designs. Competitors feel the partnership would give NVIDIA an unfair advantage because it would control the foundation of modern chipsets.
It’s a valid fear.
The good news is NVIDIA doesn’t need to buy ARM to knock the stuffing out of Intel. The ARM designs can be licensed, as they are now. Getting out from under a $40-billion obligation may turn out to be a good thing for shareholders, too.
That brings me back to the rest of tech.
The Nasdaq Composite Index rallied back last Friday to test the February highs. It’s natural to expect some form of pullback. All of the people who bought in February at the high finally got a chance to sell for no loss. Judging by the near-1% loss Monday, some of them did sell. That’s not terrible, but some perspective is needed.
I’m doubtful that the Tesla and NVIDIA news will be the catalyst for a change in trend. The stories are not nearly as bad as the initial take.
It’s more likely that tech stocks will consolidate for a week or so, then move higher again as traders attempt to push well beyond the February highs. In fact, the Nasdaq has almost erased all of this week’s losses as of writing.
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Keep in mind, the broader, benchmark S&P 500 pierced February highs in March and, after a brief retreat, pushed 5% higher.
The bottom line is there is no reason to believe the tech rally is over; it may only be getting started.
Savvy investors should strongly consider using this pullback as a buying opportunity.
Best wishes,
Jon D. Markman
