Take advantage of AMD’s warning and trade to buy NVDA stock

On Friday, October 7, Advanced micro-systems (NASDAQ:AMD) issued a PC market and revenue warning that was so frightening that it dragged the whole Nasdaq down. It weighed a lot Nvidia (NASDAQ:NVDA), as are new US rules restricting certain exports of technology components to China. However, Nvidia does not expect these rules to have a significant impact on the company’s business. Overall, the market response appears to be overblown, opening up an opportunity for contrarian investors.

You’ve heard the old adage: Buy when there’s blood in the streets. In hindsight, it’s still obvious that you should have bought the stocks that everyone was panicking. This is easier said than done, however, as emotions take over and outright scorned actions don’t necessarily look like bargains in times of peak pessimism.

So, it will take a strong stomach and an iron will to buy NVDA stock now. If you can look into the abyss of despair and buy stocks when other traders are panicking, then Nvidia (and, indirectly, AMD) may have just given you the opportunity of a lifetime in the chip market.

What’s going on with NVDA Actions?

After already losing much of their value in 2022 so far, Nvidia shares lost another 8% on October 7. This happened even though there was no Nvidia-specific negative news that day.

There was some AMD-specific news, but we’ll get to that in a bit. First, we must acknowledge that the US government has reportedly imposed a new set of restrictions on “certain US-made semiconductor manufacturing equipment to China”.

Note that it’s “some”, not all. Outraged, Reuters clarified that US officials “have granted exemptions to companies from the United States and its allies to apply for a license”.

The new restrictions mainly concern supercomputers with a certain number of “petaflops” (no, I’m not making this up) of computing power. In any case, Nvidia quickly reassured its stakeholders that the company “does not expect the new controls, including restrictions on sales of very dense systems, to have a significant impact on our business.” “.

AMD warning puts undue pressure on NVDA stock

Sometimes traders call this the sympathy effect. I’m referring to times when a company’s stock drops sharply, which also causes stocks in the same industry to lose value.

These price movements by sympathy effect can be excessive. Frankly, there was no need for NVDA stock to drop 8% on October 7th. Of course, Advanced Micro Devices CEO Lisa Su acknowledged that the PC market has “weakened significantly” in the third quarter of 2022. Is that really a surprise to anyone who paid attention? ?

AMD expects third-quarter revenue of about $5.6 billion. This figure is lower than the company’s previous estimate of $6.7 billion, plus or minus $200 million.

Yes, it’s disappointing for AMD investors. That doesn’t mean everyone and their uncle should get rid of their Nvidia stock. They are two different companies.

What you can do now

I may sound frustrated, but I like it when the sympathy effect causes traders to irrationally sell stocks of big companies. Nvidia is still a top GPU maker, and the recovery in NVDA should be strong, if at all.

There’s no way to predict when the turnaround will take place, however. So intrepid Nvidia investors will just have to hold their noses and hold on for life. Eventually, the market should come to its senses and learn to love this downtrodden chipmaker again.

As of the date of publication, David Moadel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

David Moadel has delivered compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga and (of course) InvestorPlace.com. He is also the Chief Analyst and Market Researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets.

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