Nvidia at 12 times earnings draws Niles buying alongside semiconductor shorts

Nvidia’s valuation of 12 times earnings suggests substantial negative news is already reflected in its share price. The case for buying, however, forms part of a portfolio strategy that also includes short positions in other semiconductor stocks.

In a CNBC interview on November 10, Niles Investment Management founder Dan Niles said he had started buying Nvidia during the session after beginning the day without a position. He said the valuation allowed him to pair the purchase with short positions to manage risk-adjusted returns.

Niles noted that Nvidia shares had fallen this year and underperformed the SOX semiconductor index last year. At the current earnings multiple, he considered the stock a suitable pairing with shorts in companies he believed might struggle to survive over time.

The broader semiconductor selloff also informed his decision. According to Niles, the SOX had fallen 36% from its June 22 peak through the previous Friday, while 14 of its 30 constituents had lost more than 50%. He viewed those declines as evidence that the risks he had anticipated were increasingly reflected in prices.

Niles said he had publicly expressed concern about the midterm elections in early October, citing bipartisan opposition to data centers. He argued that the time to turn negative had been then, and that his focus had since shifted to prices following the selloff.

Asked whether the risks surrounding Jensen Huang were fully reflected in Nvidia’s valuation, Niles acknowledged that they might not be. He also accepted the possibility that Huang could be asked to leave, saying he would change his position if the facts changed.

Niles said several semiconductor stocks had risen more than 10% during the session and that he had resumed shorting some names after the rebound. He declined to identify those positions. He described the Nvidia purchase as one part of his assessment of the broader AI trade, with the emphasis on managing risk-adjusted returns across the portfolio.