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NVIDIA (NASDAQ:NVDA) is currently the favorite of Wall Street.
Spectacular profits, incredible margins, strong demand. Artificial intelligence is the future. But apparently, only for one action. Yesterday's price action was fascinating. Nvidia shares closed 9% higher while the rest of the market collapsed.
There used to be a saying about investing that "the generals will fall to the soldiers." In other words, the tighter the market leadership, the more likely those leaders will converge downward and collapse. If this happens, Nvidia stock would, in theory, tank.
This has always been my problem with Nvidia. It's not about the company, which can get stellar results all it wants. This is the stock price action and valuations RELATIVE to all the other stocks that are not participating.
Why Nvidia Stock Outperformance Is a Bad Sign
I have been very wrong with Nvidia. But I still think that cisco (NASDAQ:CSCO) the analogy is real. Several market indicators continue to appear bearish. Small cap stocks are STILL below their 2021 highs. Defensive sectors continue to do well. Long-duration Treasury bonds are showing signs of life. And now we're at a point where traders are just buying Nvidia and betting against everything else. How is that healthy?
This is not a market, this is Las Vegas, and everyone is betting on a stock. And it's giving a false sense of confidence to investors who can't see what's going on beneath the surface.
A rising tide must lift all boats. If not, everyone will drown. Investors are currently taking on more risk than they probably should, and they will only care about that risk when it is too late.
I've been wrong about Nvidia stock, but the reality is that we can't have an Nvidia-only market. It's a great company with great profits and incredibly strong performance. However, to have real confidence in a bull market, I need more stocks to participate. If not, the general will fall into the hands of the soldiers, AI or not.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com. Publication Guidelines.
