That makes sense. But the advice on what to buy often doesn’t.
Take the chip sector. If I want to make money today, I buy Nvidia. (I did a few years ago, and my retirement account is better for it.) But I watch it closely. There are things that could send the stock crashing down. For one thing, its effort to buy ARM Holdings, the British chip design house, could fail. China’s government must approve it. So must ours. That is unlikely to happen, but it could.
Another risk. Stock buyers could decide Nvidia is overpriced. Right now, it costs about 25 times sales, and over 90 times earnings, to own Nvidia stock. That’s expensive no matter how you slice it. It there’s new demand in other sectors of the economy, that could easily go down. An end to the current chip shortage would also hurt Nvidia.
Today, Intel makes a better investment. It’s dirt cheap, just 3 times sales and 12 times earnings. Intel recently got a new leader in Pat Geisinger. With the Biden Administration desperate to on-shore chip supplies he has the wind at his back. Intel will put $20 billion into new Arizona chip plants. It’s going to figure out the ultraviolet processes that now keep Taiwan Semiconductor (which supplies Nvidia) ahead.
This will take time but in five years (the time you’re looking at for investments, because you don’t want to watch the market every damn day) Intel is very likely to pay off. Bigly. If it were priced at even half Nvidia’s level, it would quadruple in value.
The risks for Intel are all short-term. Again, the chip shortage may end. That would hurt margins. Cloud Czars like Amazon, Google and Microsoft are all working on their own data center chips and could walk away faster from Intel designs. Geisinger could turn out to be an idiot. But the Machine Internet means the chip shortage is unlikely to end, the Cloud Czars will always depend on cheap chips, and Geisinger is already recruiting smart, new engineers to back up his play.
Also, Intel has a dividend currently yielding nearly 2.5%. The Nvidia dividend yields .08%.
To me, the answer seems clear. Traders should buy Nvidia. Investors should buy Intel. But you are unlikely to read that anywhere else in the financial press because even the “stop trading” boys are focused on the short term.