U.S. tech giant NVIDIA Corporation (NVDA) recently reported a strong fiscal fourth quarter earnings report, yet its shares opened lower Tuesday in response. This phenomenon of a decrease in share price after good news is referred to as “sell the news” and it is an increasingly common occurrence in the tech sector.
For NVIDIA, the cause of this “sell the news” reaction is multifaceted. Firstly, even though Q4 earnings showed that revenue and profits had both increased, the company’s guidance for the upcoming first quarter of fiscal 2021 was considered to be below analysts’ expectations, leading many to believe that a significant surge in NVIDIA’s share price isn’t likely in the near-term.
However, there is another consideration going on here: Some investors were expecting better than expected earnings results and were already factoring those results into the share price before they were released. NVIDIA’s price had been appreciating for several weeks now, so when the actual results came out, investors saw the appreciation limit and sold their shares, causing the share price to decline.
Of course, the “sell the news” phenomena isn’t limited to NVIDIA’s stock. Tech stocks in general tend to remain depressed after good news because most investors tend to hold onto their shares in anticipation of further growth, and as soon as their profits are taken, they’ll move on to the next tech stock. That being said, the “sell the news” reaction doesn’t always pan out –sometimes a stock will receive a lukewarm response after good news and then go through a “buy the news” reaction, with the stock price increasing.
Overall, it’s important to remember that the stock market is unpredictable and that taking a long-term outlook tends to yield higher returns than attempting to catch short-term moves. As investors continue to measure the tech sector’s long-term growth potential against the backdrop of NVIDIA’s “sell the news” episode, it’s quite likely that the stock price will eventually rebound –just don’t expect it to happen overnight.
