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Why we see a way forward for Nvidia in China, and 2 other stock takes
A topsy-turvy two days for Linde ‘s stock offers a reminder about investment discipline. Meanwhile, Jim Cramer’s interview with an influential member of President Joe Biden’s cabinet proved encouraging for Club holding Nvidia . And an analyst at a major Wall Street shop struck a bullish chord on Humana . LIN YTD mountain LInde’s year-to-date stock performance. Shares of Linde tumbled 4% Wednesday, erasing all of their speculation-fueled gains from the day prior. It’s been a two-session roller-coaster ride that illustrates the importance of staying disciplined and not chasing stocks while they’re surging for non-fundamental reasons. And that’s especially true when speculators are driving the surge, as they were with the industrial gas giant on Tuesday. Rumors swirled Tuesday that Linde could soon be added to the Nasdaq 100 index, which tracks 100 of the largest non-financial companies listed on the Nasdaq exchange. A spot in the closely followed index was opening up thanks to Pfizer’s soon-to-close acquisition of cancer drugmaker Seagen , and Linde — with a market capitalization of nearly $200 billion — is one of the most-valuable companies waiting to get in. Traders were trying to front-run the official announcement, pushing Linde stock up 4.53% Tuesday, to an all-time high of $426.72 per share. But after the close, the Nasdaq 100 gave the nod to video-game firm Take-Two Interactive , with Linde on Wednesday now giving up all of those gains. The whole saga demonstrates why we invest based on corporate fundamentals, rather than trade on speculation, and prefer to buy stocks when they’re falling, not ascending multiple percentage points in a single session to record highs. In Linde’s case, there’s still a lot to like about the company, particularly as a way to bet on the energy transition through its clean hydrogen projects. Linde, which has a track record of consistent earnings growth, may eventually make its way into the Nasdaq 100 — but our position doesn’t hinge on that happening anytime soon. NVDA YTD mountain Nvidia’s year-to-date stock performance. Meanwhile, Nvidia ticked higher Wednesday by about 0.8%, a day after U.S. Commerce Secretary Gina Raimondo told Jim she expects the semiconductor firm will eventually resume sales of artificial intelligence chips into the key Chinese market. Those sales — which historically represented between 20% and 25% of Nvidia’s data-center revenue — have effectively been halted since late October , when the Biden administration implemented tougher restrictions on AI chip exports to China, citing national security concerns. The new rules hampered Nvidia’s ability to sell two chips — the A800 and H800 — that were created to comply with the U.S.’s first round of AI technology restrictions in October 2022. U.S. tech companies lead the world in AI innovation, Raimondo told Jim. While she argued that doesn’t mean their corporate actions should be allowed to impair U.S. national security, she said the Biden administration understands companies in other parts of the world are aiming to take market share from American firms. “We also have to enable them to be competitive, be productive, make money, sell what they can to other countries, including China, as long as it doesn’t interfere with our national security,” Raimondo said. Raimondo’s comments come as Nvidia works to develop new AI chips for Chinese data-center customers that do not exceed computing-performance thresholds spelled out in the October 2023 export restrictions. The A800 and H800 exceeded those thresholds, subjecting them to licensing requirements in order to be sold to customers based in the world’s second-largest economy. The assumption has been the U.S. wouldn’t grant licenses, making the restrictions more like a de-facto ban. “I know Nvidia wants to comply with our export controls. I know they’re a good citizen,” Raimondo said. “We also have to make sure that they can continue to compete and innovate and lead the world, and that’s why we have a lot of back-and-forth with them to make sure we can achieve both goals.” It may be too early to definitively say Nvidia’s China revenue will bounce back to historic levels. And long-term questions remain about the market opportunity, particularly given Beijing’s aggressive, yearslong efforts to develop a domestic semiconductor industry. However, the commerce secretary’s comments Tuesday seemingly put to bed any concerns that Nvidia is violating the October export rules in a manner that could soon prompt more punitive restrictions. And that’s good news for its stock, which remains by far the best-performing Club holding this year, up nearly 230%. HUM YTD mountain Humana’s year-to-date stock performance. Elsewhere on Wall Street, Bank of America analysts on Wednesday published an optimistic note about Humana, suggesting the health insurer’s resistance to being bought up by rival Cigna demonstrates management’s confidence in the business. More broadly, the firm argued Humana’s present valuation — at 15 times forward earnings compared with its five-year average of 18.7 — offers investors a “unique opportunity” to buy the stock. Cigna and Humana’s reported tie-up talks — first disclosed by The Wall Street Journal about two weeks ago — initially raised questions about whether Humana was worried about its growth prospects. Then this week, some on Wall Street wondered whether Cigna’s decision to scrap its takeover bid was motivated by its own worries about Humana. But in its bullish note to clients, Bank of America pushed back against both those possibilities. The firm pointed out that since Aetna’s eventually terminated takeover of Humana was first announced in 2015, Humana stock has more than doubled, while its per-share earnings have grown at a compound annual rate of 18%. Against that backdrop, “it is difficult to argue that this management team only discusses a deal when its growth has peaked,” the analysts contended — a view we share. “We see HUM walking away from a deal as validation of the core growth story ahead of it,” Bank of America said, fueled by multiple factors including continued strength in its Medicare Advantage business and CenterWell, its health-care services arm that encompasses primary care and home health . Without all the legal battles a Cigna-Humana tie-up was poised to face, the Club holding is much better positioned to execute on that core growth story. (Jim Cramer’s Charitable Trust is long LIN, NVDA and HUM . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Nvidia CEO Jen-Hsun Huang at the Consumer Elctronics Show (CES) in Las Vegas, USA, 04 January 2017. Huang announced that his company would collaborate with the German car company Audi in future.
Andrej Sokolow | Picture Alliance | Getty Images
A topsy-turvy two days for Linde‘s stock offers a reminder about investment discipline. Meanwhile, Jim Cramer’s interview with an influential member of President Joe Biden’s cabinet proved encouraging for Club holding Nvidia. And an analyst at a major Wall Street shop struck a bullish chord on Humana.
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