Brutal Market Collapse—Which Stocks to Buy on the Dip, Which to Avoid

Key Concepts

• Market Sell-off & Profit Taking: The current market downturn is largely attributed to profit-taking after a summer rally, with investors awaiting key earnings reports.
• Nvidia's Earnings: Nvidia's upcoming earnings report is considered the most crucial of the season, expected to affirm the momentum of the AI trade.
• Small-Cap Volatility: Small-cap stocks are experiencing outsized volatility, with some showing significant pullbacks despite strong fundamentals.
• AI Trade: The Artificial Intelligence sector continues to be a major focus, with companies like Nvidia and Google showing strong performance or potential.
• Analyst Sentiment & Price Targets: Analyst upgrades and positive price targets are still prevalent for many companies, even amidst market pullbacks.
• Institutional Activity: Institutional buying is a key indicator of confidence, with significant activity noted in some of the discussed small-cap stocks.
• Dip Buying Opportunities: Several stocks are identified as potential "buy the dip" candidates, suggesting that current pullbacks might present good entry points for long-term investors.
• Risk Management: The importance of managing losses with stop-losses and taking profits at trigger points is emphasized for retail investors.

Market Overview and Nvidia's Significance

The market is currently experiencing a broad sell-off, characterized by significant red across the heat map, with tech stocks being particularly affected. This downturn is primarily viewed as profit-taking following a strong summer rally. Investors are keenly awaiting key economic indicators and corporate earnings, with Nvidia's upcoming earnings report highlighted as the most critical event of the season. This report is expected to confirm whether the AI trade is still gaining momentum or if it's nearing its natural course. Despite the current sell-off, analysts anticipate a potential resurgence in buying activity soon, contingent on positive earnings outcomes.

Market Performance and Perspective

• Russell 2000 (Small Caps): Hit the hardest, down over 2%.
• Dow Jones Industrial Average: Second hardest hit, largely influenced by Nvidia's performance.
• Other Indexes: Down around 1%.
• Dow Jones Points: A 700-point drop on the Dow, while significant, is put into perspective when considering the index's overall value (around $46,000). Sustained drops of this magnitude would signal a more serious concern.
• S&P 500: Has been selling off for four consecutive weeks but is trading within a five-week range, near all-time highs. This suggests a period of consolidation rather than a severe crash, with indicators cooling down to potentially support a continued rally.

Nvidia Stock Analysis

Nvidia's stock has experienced a notable pullback, down approximately 5% in the last five days. This volatility around earnings season is a recurring pattern. Historically, there has been a run-up to Nvidia's earnings, followed by a pullback or volatility post-announcement. However, the current pre-earnings volatility is significant, especially after the stock broke out to new highs and has since been trading sideways.

Key Observations on Nvidia:

• Recent Performance: Down nearly 5% in five days, showing significant pullback.
• Institutional Activity: Mild selling by institutions in early Q4, likely as profit-taking ahead of the earnings release.
• Long-Term Outlook: Consensus price targets remain positive, with significant upside potential (consensus around $240, high-end forecasts near $300-$350).
• Analyst Sentiment: Nvidia continues to be on the "most upgraded list," indicating sustained positive sentiment and a "blossoming outlook."
• Expected Catalysts: The earnings report is expected to reaffirm robust demand and a positive long-term outlook, potentially leading to continued accumulation.

Live Nvidia Earnings Coverage: The hosts will be providing live coverage of Nvidia's earnings report on Wednesday night, starting at 4:30 PM Eastern Time.

Small-Cap Stock Analysis

The discussion then shifts to several small-cap stocks that have experienced significant pullbacks, with a focus on understanding the underlying reasons and potential future outlooks.

Dragonfly (DRPO)

Dragonfly is described as a company in the drone market that is underperforming despite its positioning.

• Challenges: Lack of deal volume, insufficient revenue growth, and a weak outlook.
• Market Support: Limited analyst and institutional support, coupled with high short interest, creating resistance to price increases.
• Competition: Faces intense competition from large defense corporations and more successful drone companies.
• Long-Term Prospect: Potential for acquisition if successful, but currently not showing strong performance.
• Company History: Has been in business for 24 years, with expectations of better performance.

Amprius (AMPX)

Amprius is presented as a company with strong fundamentals that is experiencing a pullback.

• Performance: Down over 16% in the last five days.
• Fundamentals: Possesses business, demand, ramping production capacity, and a robust outlook, affirmed by results and analyst/institutional coverage.
• Chart Action: Rising volume supports the uptrend, and the current pullback is seen as a healthy correction.
• Analyst Sentiment: Strong positive sentiment and significant upside potential indicated by consensus price targets.
• Recommendation: Considered a good stock to hold through volatility, with expectations of trending higher long-term.
• Profitability Timeline: Long-term consensus estimates project profitability by 2027, with the timeline potentially shortening due to strong deal volume and outperformance.

Big Bear AI (BBAI)

Big Bear AI is a company in the AI and defense sectors that is currently struggling.

• Performance: Down almost 23% in 5 days, showing a significant pullback.
• Challenges: Well-positioned in AI and defense but not producing strong results. Revenue outlook is not ramping, and it's not profitable.
• Market Support: Limited analyst upgrades or price target increases, and minimal institutional activity.
• Recent Activity: A recent earnings release provided temporary inspiration due to short covering and retail investor interest, but the stock has since fallen back to new lows.
• Outlook: Expected to trend sideways or move lower, potentially to the $4.50 region or below, due to weak revenue and profit generation.

Navitas Semiconductor (NVTS)

Navitas Semiconductor, specializing in silicon carbide and gallium nitride semiconductors, has seen a significant decline.

• Performance: Down almost 11% in 5 days, and nearly 50% in the last month.
• Technology: Produces semiconductors for industrial purposes, suitable for power switching, EVs, and autonomous vehicles.
• Challenges: High short interest and a significant revenue decline (down 53% in the last report).
• Market Position: Potentially well-positioned for a semiconductor super cycle, but current performance is weak.
• Chart Action: Experienced a spike in October followed by a sharp sell-off, with resistance at the top of the trading range.
• Outlook: Likely to trend sideways or lower over the next couple of quarters.

Datavault (DVLT)

Datavault is a small company focused on helping businesses monetize and sell data on cryptocurrency platforms.

• Performance: Down significantly from its highs, though showing some recovery from the bottom.
• Recent News: Reported earnings, raised guidance, and secured a technology partnership with a large company.
• Business Model: Transitioning to data monetization and sales on crypto platforms.
• Funding: Received funding through partnerships.
• Current Stage: Still in a low or no revenue and earnings phase, leading to volatility.
• Outlook: The outlook is brightening, affirmed by positive news flow and partnerships.

Nebius Group (NBIS)

Nebius Group is a European data center company focused on providing AI infrastructure.

• Performance: Down about 8% in the last five days and 23% in the last month, indicating a significant nose dive.
• Business: Builds intelligence products and services powered by machine learning, focusing on data centers for AI in Europe.
• Market Reaction: The sell-off aligns with the general market downturn but is more pronounced due to the stock's previous volatile and robust move.
• Chart Support: Support levels are still above previous critical levels, suggesting a potential rebound.
• Technical Indicators: MACD convergences suggest potential market reversals and a move back to recent highs.
• Revenue Performance: Despite missing the top-line estimate (146 million vs. 155 million expected), revenue was still significantly higher year-over-year (over 100 million more than last year), indicating an overreaction to a single data point.
• Demand: Strong demand for computing power from companies like Meta and Microsoft for their internal AI development.
• Outlook: Expected to be a long-term winner with a potential rebound in the near future.
• Analyst Targets: Consensus price target of almost $140, indicating a 62% upside.

Microvast (MVST)

Microvast is a company focused on batteries for electric vehicles and lithium battery solutions.

• Performance: Up 400% in a year, showing significant growth, but currently experiencing pullbacks.
• Chart Pattern: Described as "ratcheting higher," moving in fits and starts but trending upwards.
• Fundamentals: Appears to have profits, growth, and widening margins.
• Short Interest: High short interest contributes to volatility.
• Earnings: Earnings were not blowout but showed year-over-year improvement in revenue and earnings.
• Coverage: Limited institutional and analyst coverage.
• Outlook: The current pullback is seen as a potential buying opportunity, with the question being whether it will retest previous highs or set new ones.

CoreWeave (CRWC)

CoreWeave is a company in the data center sector that has experienced a significant pullback.

• Performance: Down almost 50% in a month.
• Challenges: Bad guidance due to supply chain delays impacting data center development. The company has also leaned on debt to support growth.
• Outlook: Despite the delays, the long-term outlook remains robust, and the stock is expected to recover.
• Recommendation: Look for the market to bottom and then consider buying.

Large-Cap Stock Analysis

The discussion moves to larger-cap stocks, providing a contrast to the small-cap segment.

Google (Alphabet)

Google was one of the few green names in the tech sector today, driven by news of Berkshire Hathaway's investment.

• Key News: Berkshire Hathaway's purchase of Alphabet stock. Warren Buffett reportedly admitted missing out on the stock's earlier growth.
• Investor Confidence: Berkshire's investment suggests continued growth potential, as they typically don't buy at market tops.
• Business Focus: Berkshire is a cash flow company, investing in Alphabet's cash flow and capital return strategies.
• AI Impact: Google's AI-fueled travel search engine is poised to disrupt the travel industry and boost revenue.

Meta Platforms (META)

Meta has experienced a pullback, with investors questioning the return on investment (ROI) for its significant spending on data centers.

• Pullback Reason: Doubling down on data center spending despite analyst questions about ROI.
• Earnings: No alarming news in the earnings report itself, but the inability to clearly answer investor questions about ROI contributed to the sell-off.
• Historical Context: Meta was an early adopter of AI spending, which initially led to a stock price plummet but eventually turned into a buying opportunity and a period of rallying.
• Outlook: The current sell-off driven by increased AI spending is viewed as a potential buying opportunity, as Meta is expected to monetize its AI investments.

Palantir Technologies (PLTR)

Palantir has seen a pullback, largely in line with the broader market.

• Performance: Down about 7% in the last five days and almost 4% in the last month from its all-time high.
• Market Reaction: Primarily selling off with the rest of the market, with no alarming company-specific news.
• Chart Analysis: Consolidating nicely, with no signs of increased selling volume or panic.
• Profit Taking: Investors are taking some profits after a significant run-up.
• Short Interest: Remains a factor but is not considered a primary driver of concern.
• Valuation: While the P/E ratio is high (240 times earnings), it reflects a robust growth outlook. The P/E is projected to fall to around 21 by 2034.
• Outlook: Expected to grind higher long-term. A more pronounced pullback could present a buying opportunity.
• Analyst Targets: Consensus price target is $172, indicating significant upside and a floor that keeps getting raised.

Other Sectors and Stocks

SoundHound AI (SOUN)

SoundHound AI has experienced a significant pullback, attributed partly to high short interest.

• Performance: Not a great month, with a surprising pullback.
• Short Interest: High short interest (almost 30%) is capping gains and causing selling pressure.
• Long-Term Outlook: Remains robust, with solid analyst and institutional trends.
• Institutional Buying: Institutional buying has been ramping up in recent weeks.
• Analyst Targets: Consensus price target of $17, representing a 50% upside.
• Catalyst Needed: A catalyst is needed to reinvigorate market sentiment, potentially from Nvidia's report or a general market bullishness.
• Earnings: Earnings release was not bad, and guidance is being raised.
• Outlook: Seen as an exaggerated pullback due to short interest, likely to become a good buying opportunity.

Applied Digital (APLD)

Applied Digital operates in digital infrastructure and Bitcoin mining.

• Performance: Down slightly, with a significant pullback from previous highs.
• Drivers: High short interest (over 30%) and a decline in Bitcoin prices are contributing factors.
• Business Model: Data centers used for both Bitcoin mining and High-Performance Computing (HPC) workloads.
• Sector Impact: Part of a sector currently experiencing a broader sell-off, influenced by Bitcoin's performance.
• Early Investment: For early investors (when the stock was $5-$6), it remains significantly up despite the pullback.
• Strategy: Taking profits and holding some stock is an option for early investors.

Snowflake (SNOW)

Snowflake, a cloud data company, is experiencing a pullback in line with the general market.

• Performance: Pulling back after breaking out to a new high six weeks ago.
• Chart Action: Reconfirming support at the prior breakout point, which is a bullish signal.
• Earnings & Guidance: Latest earnings release and guidance were positive.
• Outlook: Seen as a buying opportunity, with expectations of trending higher after confirming support around the $235-$240 level.

Energy Stocks (Nuclear - OAKLO, SMR)

Energy stocks, particularly in the nuclear sector, have seen significant run-ups and subsequent pullbacks.

• Sector Momentum: Strong momentum due to the growing need for clean energy alternatives.
• Government Support: Government interest in diversifying supply chains for critical minerals and energy sources.
• Challenges: Many companies are speculative and not yet generating revenue.
• Oaklo (OAKLO):
  • Outlook: On track to begin operations and generate revenue within 18 months.
  • Chart Technicals: Bullish technicals, good volume, working off MACD convergence.
  • Rebound Potential: Expected to retest current highs, with potential for a 100% gain. The deeper the pullback, the bigger the rebound.
  • Long-Term: If it sets a new high, the uptrend is intact; otherwise, it may become range-bound.
• SMR (SMR):
  • Chart: Considered "uglier" than Oaklo due to less market love, institutional, and analyst support.
  • Pipeline: Less visible pipeline compared to Oaklo.
  • Catalyst: Potential catalyst with the announcement of a firm deal for its first commercial reactor by year-end.
  • Rebound Potential: A rebound to current highs could yield a 150% gain.
• Chris's Perspective: While acknowledging the sector's growth potential and importance as a clean energy alternative, he notes that these are companies not yet generating revenue. For long-term investors, it's about knowing acceptable entry and exit points.

Rare Earth Stocks (MP Materials - MP)

Rare earth stocks are trading in sympathy with each other, driven by their critical importance for supply chain diversification.

• Sector Importance: Considered "too important to fail" due to their critical role in the US supply chain.
• Government Impetus: Government interest in diversifying supply chains.
• Speculative Nature: Many are speculative, with some not yet in mining operations.
• Volatility: Expected to be volatile.
• MP Materials (MP):
  • Analyst Upgrade: Received an upgrade from JP Morgan with "unmatched earnings visibility."
  • Operations: Operations, mind, and pathway to revenue and profitability are considered the clearest among peers.
  • Viability: A viable choice for speculation in the sector.

Bitcoin (BTC)

Bitcoin is experiencing liquidity concerns, meaning there are not enough buyers in the market.

• Liquidity Concerns: Not enough buyers are entering the market, leading to price declines.
• Investor Hesitation: Potential buyers are on the fence, waiting for lower price levels.

"Bridget's Buys" Segment

A new segment, "Bridget's Buys," is introduced, where Bridget will add a stock to a watch list daily, simulating a $100 investment, to track performance.

• Inaugural Pick: Nebius Group (NBIS).
• Reasoning: Positive analyst sentiment, significant pullback from its consensus price target, and perceived market potential.
• Watch List: Available at marketbeat.com/bid.

Conclusion and Advice

The market has been rough, with significant pullbacks across various sectors. Investors are advised to:

• Manage Risk: Keep positions small, use stop-losses, and set trigger points for taking profits.
• Long-Term Perspective: For companies with strong fundamentals and promising long-term outlooks, current pullbacks may present buying opportunities.
• Do Your Own Research: The show provides ideas, but individual research is crucial before making investment decisions.
• Stay Invested: Despite the volatility, the underlying trends for many companies remain positive, suggesting a need to hold and let the market consolidate.