Why Nvidia Stock Keeps Dropping

What happened

Shares of semiconductor company Nvidia ( NVDA -6.74% ) dropped again on Monday — down 4.2% as of noon ET — its fourth straight down day in a row. There doesn’t appear to be any particular news behind today’s decline, at least not specific to Nvidia.

So what

From a big picture perspective, the news isn’t great. CNBC reported this morning there’s a risk that the ongoing chip shortage could depress Christmas shopping this year.  

Although high demand for high-end Nvidia graphics chips is generally good news for the company and its pricing power, the network notes that “semiconductors are beneath the hood of an increasing number of products,” but “things made with chips don’t just use one chip.” Thus, even a PC manufacturer lucky enough to get hold of all the Nvidia chips it needs might not be able to sell its PC if it can’t also get all the power control, memory, and other chips it also needs to build the product. Or the manufacturer might not buy the Nvidia chips in the first place if it knows it won’t be able to obtain the other chips.

Now what

That’s one risk Nvidia investors face. A bigger risk, though, may be its high-flying stock price.

This morning, analysts at JPMorgan, at UBS, at Barclays, Citigroup, R.W. Baird, and Evercore ISI cited a range of semiconductor chipmakers that they like and believe are undervalued, and Nvidia wasn’t one of them. Morgan recommended Qualcomm ( QCOM -0.30% ) for its earnings upside, Evercore picked Micron ( MU -1.39% ) as a stock that is “structurally undervalued,” and Barclays, Baird, and Citi raised their price targets on Broadcom ( AVGO -1.59% ) based on demand for its products, TheFly.com reported today.

Nvidia shares sell for 93 times trailing earnings. Micron is valued at less than 17 times earnings; Qualcomm is at 23 times, and Broadcom is at 47. It’s pretty clear why Wall Street might consider these stocks relatively better deals than Nvidia.

And it’s just as clear why some investors might have decided that now is a good time to cash out some Nvidia stock winnings, and reinvest them in relatively cheaper stocks.