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NVIDIA Crashes on Dismal Outlook: Should You Buy Its ETFs?

NVIDIA NVDA was the worst performer in Friday’s trading session, as the stock tumbled as much as 20% — its worst one-day drop in more than a decade. This has erased more than $23 billion from the stock’s market capitalization. The massive loss for this small chipmaker came following disappointing third-quarter fiscal 2019 results and a dismal outlook (read: Chip Stocks See Worst Day in a Decade: ETFs in Focus).

Earnings per share came in at $1.67, missing the Zacks Consensus Estimate by six cents but improving 38% from the year-ago quarter. Revenues climbed 21% year over year to $3.18 billion but fell short of the estimate of $3.24 billion.

For the fourth quarter of fiscal 2019, NVIDIA expects revenues of approximately $2.70 billion (+/-2%). This is much below the Zacks Consensus Estimate of $3.40 billion. The company cited that booming revenues from selling its graphics chips to cryptocurrency miners appears to be over at least for now.

Depressed by reduced demand for high-end chips for mining cryptocurrencies, more than half of the analysts who cover the stock lowered their target price on the stock with the average price target now being $246.71, down from a pre-earnings average of $285.94.

With the latest slide, the stock has now dropped more than 40% from a record high in early October. However, the beaten down prices could be a solid buying point for investors given that its data center and gaming business will continue to grow as both data center graphics processing unit market and gaming GPU market expand. Additionally, NVIDIA has a Zacks Rank #3 (Hold) and solid Growth Score of B. It further belongs to a top-ranked Zacks Industry (top 42%).



ETFs in Focus

Given this, investors seeking lower risk could invest in ETFs that have a higher allocation to this graphics chipmaker. Below we have highlighted some of them (see: all the Technology ETFs here):

VanEck Vectors Semiconductor ETF SMH

This ETF has AUM of $1 billion and average daily volume of about 6.5 million shares. The fund provides exposure to 25 global securities by tracking the MVIS US Listed Semiconductor 25 Index. NVIDIA occupies the third spot with 7% of the assets. While American firms dominate the fund’s holdings with 76.9% assets, Taiwan (11.3%), the Netherlands (9.7%), and Switzerland (2.1%) round off the top four in terms of country exposure. The fund charges an expense ratio of 0.35%. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

iShares PHLX Semiconductor ETF SOXX

This ETF offers exposure to 30 U.S. companies that design, manufacture and distribute semiconductors by tracking the PHLX SOX Semiconductor Sector Index. Of these, NVDA takes the fifth spot with 5.4% allocation. The fund has amassed $1.2 billion in its asset base and charges a fee of 47 bps a year. It trades in a solid volume of 916,000 shares and has a Zacks ETF Rank #3 with a High risk outlook (read: Why You Should Buy Beaten-Down Chip ETFs Ahead of Q3 Earnings).

Global X Robotics & Artificial Intelligence ETF BOTZ

This product seeks to invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and AI, including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles. It tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index and holds 37 stocks in its basket, with NVIDIA taking the seventh position holding 4.9%. BOTZ has AUM of $1.7 billion and trades in solid average daily volume of 820,000 shares. It charges 68 bps in annual fees.

Invesco DWA Technology Momentum ETF PTF

This fund follows the Dorsey Wright Technology Technical Leaders Index and provides exposure to companies that are showing relative strength (momentum). Holding 41 stocks in the basket, NVIDIA occupies the fifth position, accounting for 3.3% share. The product is illiquid and unpopular with AUM of $125.9 million and average daily volume of 12,000 shares. It charges 60 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.

Invesco Dynamic Semiconductors ETF PSI

This fund tracks the Dynamic Semiconductor Intellidex Index, which evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value. It holds 30 securities in the basket, with NVIDIA occupying the ninth position, holding 3.5% of assets. PSI has AUM of $185.6 million and charges 61 bps in annual fees. It trades in volume of 60,000 shares per day on average and has a Zacks ETF Rank #3 with a High risk outlook.

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