- Rich valuation at FY1 PE ratio of 35x and currently above analyst price targets.
- Broader Tech sector momentum slowing down, posing a risk to the company given significant outperformance vs. the Semiconductors index over the last 3M.
- Given ongoing market liquidity pressures, upcoming NVIDIA results on 19 November could serve as a negative catalyst for further downside in the name.
As noted in our weekly note Momentum slowing?, short-term market dynamics are tilting bearish for equities. The rapid rise in US indices leaves little room for further upside, and although the earnings season has been strong, the muted price reaction to beats likely indicates short-term exhaustion. The ongoing US government shutdown is also a headwind for risk assets, as the TGA cash build-up and drop in US reserve balances have been draining market liquidity. This is reflected in crypto weakness, a beneficiary of excess liquidity.
ASML comes to mind, and given the stock has outperformed both the broader SOX index and NVIDIA over the last 3M, we see asymmetric risk/reward to the downside in the name, should broader Tech weakness continue. Valuation also appears rich, currently trading at a 14% premium to its 3Y average and at a premium to analysts’ price targets. NVIDIA results on 19 Nov also serve as a catalyst for the stock, and given large price swings in tech stocks during this earnings season, we see merit in positioning for downside in the name.
We seek to add downside leverage on the name and propose Long 3x Dec25 840 puts financed by Dec25 900 puts costing 2.3% of underlying. (Spot ref: 900.2, Fut ref 901.7).