This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
A distressed AI trade is hard to pass up.
The doldrums of September have already hit investors, making the warnings of a historically rough month for stocks ring true. Big Tech names leading the market sell-off throw into question what will lead stocks higher as investors rotate to other sectors. And among the other immediate challenges, the threat of regulation is ramping up.
But “near-term headwinds” is another way of saying “attractive buying opportunities” for AI bulls and those analysts who see the light.
This week’s reported escalation of the DOJ’s probe into Nvidia (NVDA) marked the latest snag in a moment of uncertainty. (The company and others received subpoenas regarding business practices around AI processors.)
What is clear from the still-high prices, however, is that Wall Street isn’t debating whether AI technology and its biggest players will usher in game-changing results. That belief has already crystallized. Instead, all the impediments to potential profit have led to mere haggling details over price.
Analysts at Bank of America reiterated their Buy recommendation for Nvidia Wednesday, framing the AI king’s short-term hiccups and hurdles as potential temporary discounts. The stock’s array of difficulties was presented clearly enough, from super chip delays to questions over AI’s massive investment costs to the season’s harsh reputation.
But what one might perceive as toxic traits could be another’s green flags. The report gave Nvidia a price target of $165, an upside of more than 50% from Thursday’s close. And from the way Nvidia was litigating the nomenclature of its subpoena (“Civil Investigative Demand”), we’re clearly seeing a bullish company that’s saying, “If you don’t accept me at my heightened regulatory scrutiny, you don’t deserve me at my ATH.”
One of the reasons it’s hard to predict what will come of the Justice Department’s efforts is the multitude of other ongoing cases targeting the tech sector, all with uncertain outcomes, on the edge of a new presidential administration, as well as a history of inaction.
For Nvidia, antitrust officials are seeking to learn if the company is wielding its market power to keep customers locked into their business. Complicating matters is that some of their buyers have or are developing their own custom chips. And, as analysts point out, Nvidia’s cloud customers have the resources and the sophistication to source AI infrastructure from multiple vendors.
Bank of America analysts are taking a wait-and-see approach, even as they acknowledge that more government scrutiny into Nvidia’s leading chips position poses a risk. “Until we have more details, we assume no specific material impact on NVDA’s fundamental opportunity.”
This newsletter asked last week if the AI trade was entering a new, diminished phase or if recent troubles were just a blip. It’s not hard to see that valuations have fallen. But that’s only served as a louder invitation to climb in.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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