Nvidia's fall is 'way overblown': Kenny Polcari

Nvidia (NVDA) has lost nearly $430 billion in market value over the last three trading, coming down from a high that dethroned Microsoft (MSFT) as the world's most valuable company.

Kace Capital Advisors founder and CEO Kenny Polcari joins Morning Brief to give insight into Nvidia's recent performance and how he thinks the stock will perform moving forward.

Polcari explains that reactions to Nvidia's downturn are "way overblown": "I don't think people need to be nervous about what's happening in Nvidia. They should not be surprised. The stock has done nothing but go up in a straight line. So a 13% pullback, yes, does represent a little bit of a sale," he adds. Polcari tells clients to focus on the long-term story and to take this moment as an opportunity to be strategic.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video transcript

All right.

Well, it does Nvidia's slide show signs that the A I trade might be unraveling.

We wanna talk about that, that with Kenny Polcari, he is Key's Capital advisors, managing partner here to help us answer that question, Kenny, what do you think?

So?

II I think it's way overblown.

I don't think people need to be nervous about what's happening in NVIDIA.

They should not be surprised Sag has done nothing but go up in a straight line.

So a 30% pullback yes, does represent a little bit of a sale.

But quite honestly, you could see this thing drop another uh five or 8%.

You know, if we saw a 20% pullback in video, I wouldn't be surprised at all.

It's up 100 and 40% just this year alone.

A lot of it driven by this A I theme and this A I mania which, you know, on its own, probably got a little bit ahead of itself.

And so therefore, I would look at this and, and I, and I continue to tell clients, I would look at this as an opportunity, meaning take your time, be strategic.

If you see further weakness.

It's OK because this is a, this is about, this is a long term story about the future.

This isn't about today or tomorrow.

And so with that in mind, if we see continued profit taking in NVIDIA, is that ahead for the exit sign for some who have been holding it for an extended period?

No, because look, I I I'm a perfect example of that.

I've been holding it for over two years.

This selling does nothing.

I'm, it's not gonna cause me to sell.

Oh my God, I gotta sell my NVIDIA, right.

I'm, I'm just not doing it quite honestly.

I would use this weakness as an opportunity, but you also have to understand there's a couple of things happening.

We're at the end of the quarter, right?

So it's a quarter marking period.

So you get a lot of big asset managers that are trying to reshuffle and rebalance, they gotta show that they own some, but they use some of the profits to reallocate to other sectors.

And so this is just normal risk management and that's what individual investors need to understand.

Look, Vanguard's been a buyer going into this quarter, but Fidelity has been a seller.

They're both large asset managers, but they're buying and selling for different reasons.

Doesn't mean fly, doesn't mean Fidelity is getting rid of their position.

They're just trimming some of it where Vanguard says we see even more opportunities.

So we're buying.

So you have to think like an institution.

And what, what, what is, I guess the appropriate risk management.

Then if you're an investor at home, how much of your portfolio should be allocated towards NVIDIA towards chip sector?

Because that's the big question.

OK.

So that is a big question.

And I actually put this in my note this morning.

Look, I'm 63 NVIDIA is 13% of my portfolio and some asset managers would say, oh my God, that's way inappropriate for you because of my age.

Well, guess what?

It's not inappropriate for me because I'm the one who made that decision.

I'm comfortable with that level of risk.

If you're a 30 year old, you may wanna 40% in the A I trade because you've got 30 years to go.

But if you're 70 you may wanna have, you know, a 5% or a 3% position because you've got less time.

Um and you, and you don't wanna risk it.

So the, the answer to that question very much depends on who you are and where you are in the life cycle and on the risk scale, I mean, we've tracked the run up in NVIDIA.

But if you're rotating out of NVIDIA, what are the other areas that look appealing right now?

Well, listen, if you're rotating out of NVIDIA, but you wanna stay reallocating some of the profits, you wanna reallocate them outside of tech or do you wanna, you know, and take advantage of consumer staples or energy or financials, which are perfectly, uh, uh, great sectors to rotate into.

Especially if you think that the A I trade is well ahead of itself and we're gonna see some pullback and the market's gonna hit a little bit of, uh, uh, a little bit of a rough patch in the, in the o over the summer.

July and August and maybe into September, which I actually figure it's going to so new money that I've been putting to work, I've actually not been chasing tax.

I haven't been chasing, you know, the A I trade, but I've been putting money into consumer staples, utilities, utilities.

The most boring sector in the world is up 15% here today.

A boring part of the A I trade A.

That's exactly right.

And so there's huge opportunity there.

So, uh, listen, I, I, I'm in this, I'm in this camp that you can't let, especially stuff like NVIDIA because it's not a small calf unknown company.

It's very much at the center of where the world is going.

So for people to go home.

Oh, my God.

I gotta sell my NVIDIA.

Listen, when Bloomie's has a sale and dresses go on sale for 30%.

You don't go to return your clothes, you buy more because it's on sale.

Yeah, that's a fair argument.

It's a fair argument.

And that's why when people say, especially with names like Apple or Amazon.

It goes down 10% and you go oh my God, I gotta sell my No, no, no, that's the wrong decision.

You know.

So II I think investors are also just taking a step back right now.

They're trying to figure out where we are right now within some of that enthusiasm, euphoria that we see within the market.

So we have NVIDIA, we have that story, but then also moving on from the other catalysts that investors need to keep on the radar when it comes to the fed, when it comes to that P ce print that we're gonna be getting at the end of this week, we've also got the Russell rebalancing.

So what should investors, what do investors need to know the Russell rebalancing happens on the same day?

And so what investors have to understand about the Russell rebound just like the S and P rebalancing last week is that it says nothing about the market.

All it does is the Russell has rebalanced the weightings of these, of these small and mid cap stocks that are in their different indexes to reflect the movement.

So it says nothing about the overall market.

It just it's gonna create volume because there's gonna be shifts in names, but it says nothing to you as an investor about.

Should I get out of this name or into that name?

Not at all the, the P CE which is the feds in flavor inflation gauge is something that people will pay attention to and trust me, it is expected to be softer, which would be a positive.

Um But you really have to turn around and look at yourself and say to yourself, am I really feeling this decline in inflation when you go to the supermarket, when you pay your utility bill, when you get your insurance bill, are you really seeing prices come in?

Do you feel any better about the inflation picture?

And that's kind of where, where, you know, the investor has to kind of where the rubber meets the road you were talking about where there might be sales coming forward here.

What, what are the three, are there?

Three names that you hope there are sales in uh in some of the stock price action that we've seen recently?

Certainly in the tech space is what I'd like to see.

A lot of NVIDIA is right at the top of my list, right?

I said I would love to see NVIDIA back off because I wanna buy more, not only for me, but I wanna buy it also for clients, but I didn't want to chase it.

I mean, look at the chart, it's just, it goes like this, I'd like to see it actually come back to trend line support is where I think uh where I think it could actually test and then where I think you could start to get in, right?

But other names in that tech space.

So, uh uh A MD is a name.

Uh Mike's gonna be, we're gonna, we're gonna hear from Mike, right?

So that's gonna be a potential name.

Even Intel is a name that suddenly seems interesting.

Pent is another name in the tech space, right?

But away from that, like I said, I'm looking at the other sectors.

I like consumer staples because if I think that there's gonna be a little bit of a rough patch over the summer into the fall, you, it's the things you need versus the things you want, right?

So you need, the staples are things you need.

Uh And so that, so they continue to have some pricing power and look iiii I think it's safe place to put some money, still have exposure to the market.

Some of them are very good dividend payers as well.

So you get paid for owning it besides the fact again, I'm 63.

So it makes sense if you're 22 maybe you don't want to be in consumer staples.

Ok, great.

I get it.

But for me, uh and a lot of my clients, you need to have some stability and you need to understand what those different sectors represent in the, in the broad portfolio.

All about a balanced approach.

Kenny Koka.

Always great to have you, especially here in studio.

Thanks so much for joining us here today.