Each company's rebound probably carries a lesson or two about how -- outside of broad market selloffs, at least -- major buying opportunities in market leaders with big secular growth drivers tend to happen at times when negative headlines are easy to find and even some smart investors are nervous about demand and/or competitive headwinds.
After hitting a high of $292.76 in October 2018, Nvidia lost more than half its value by the end of the year, thanks to both a broad market/chip stock selloff and worries about declining gaming GPU sales amid a channel inventory crunch caused by nosediving demand from cryptocurrency miners.
And though markets began rebounding during the first half of 2019, Nvidia was largely left out of the fun, as investors remained cautious in the wake of a major January 2019 sales warning (caused mainly by weak gaming GPU sales) and weakening server GPU demand (caused by inventory corrections and a cloud capital spending slowdown). As a result, Nvidia was still more than 50% below its October 2018 high as of early June.
But gaming GPU did gradually improve, aided by normalized inventories, the rollout of Nvidia's Super GPU line and the arrival of more high-profile games supporting the real-time ray tracing abilities of Nvidia's most powerful gaming GPUs. And as Nvidia's latest earnings report drives home, server GPU sales have surged to new records amid a rebound in cloud demand.
Following that report, Nvidia has taken out its October 2018 high, with the shares crossing $300 (and $310) for the first time on Wednesday following a Bernstein upgrade.
For its part, Netflix rebounded strongly in early 2019 after a late-2018 swoon, but then tread water over the next few months as investors mulled both the pending arrival of Disney's (DIS) Disney+ service and the impact of an early-2019 price hike on subscriber growth. And following a Q2 subscriber miss, Netflix tumbled from mid-July to late-September; the shares were 40% below a July 2018 of $418.97 at their September low.
Since then, Netflix has delivered a pair of earnings reports that -- though not exactly knocking the cover off the ball -- were better than what many investors feared when its stock plunged below $260 in September. While Netflix has signaled that its U.S. paid subscriber growth has been affected some by the price hike and Disney+'s November launch, it has remained positive. And international growth has remained quite strong, with Netflix adding 14.6 million paid international subs during the second half of 2019.
Markets have responded by propelling Netflix's stock to new 52-week highs. It's changing hands at $387 as of the time of this article.
Two big lessons that investors can arguably take away from Nvidia and Netflix's 2019 selloffs in the event that similar situations emerge down the line: Don't lose sight of the big picture, and maintain a sense of perspective when fears are running high about the threat posed by a rival or a new technology.
While Nvidia's gaming GPU sales were hammered by an inventory crunch, its leadership position in the gaming GPU market was never seriously threatened, and the secular trends driving long-term PC GPU demand remained in place. Likewise, though Nvidia's server GPU sales were pressured by a cloud capital spending pause, the company remained on good competitive footing in the data center, and it was only a matter of time before cloud giants stepped up their GPU purchases again, given their infrastructure needs and large AI/deep learning investments.
In Netflix's case, it was worth remembering that even after its price hikes, Netflix remained a pretty good deal relative to U.S. pay-TV services. And with regards to the threat posed by Disney+, the differences between Netflix and Disney's streaming services were (as I mentioned in September) worth keeping in mind: Disney+ is exclusively focused on family-friendly material, and has a relatively narrow content library. The fact that (as Disney CEO Bob Iger recently hinted) it wouldn't be as easy for Disney+ to quickly rack up a ton of subscribers in some big international markets as it would be in the U.S. also shouldn't have been ignored.
With the Nasdaq in striking distance of 10,000, there aren't many opportunities right now that look similar to Nvidia in June 2019 or Netflix in September 2019. One possible exception is online travel giant Booking.com (BKNG) . Booking is unlikely to deliver giant short-term returns, given its growth profile, and it could see some more bad news in the near-term thanks to the coronavirus outbreak. However, the company continues executing well, is trading about 10% below its March 2018 high and carries an enterprise value (market cap minus net cash) equal to just a little over 15 times this year's expected free cash flow.
Either way, with investor psychology being what it is, it should be just a matter of time before more Nvidia and Netflix-like opportunities present themselves. As the old saying goes, history doesn't repeat, but it often rhymes.