NVIDIA Corporation is a top global technology company that specializes in the development of semiconductors, well known particularly for its graphic processing unit. The corporationu2019s product lines cut across the gaming, data centers, and artificial intelligence industries. Given that it is a strong participant in the technology industry, external influences play a crucial role in triggering its stock performance, which could be economic indicators and the behavior in the industry. One particular external influencer is the price of oil. For the last some years, there has been an observable correlation trend between NVIDIA stock and the price of oil. Thus, most of NVIDIAu2019s incomes are from the connection it has with the gaming industry. The same industry relies on consumer expenditure; the primary source of income to the ordinary individual is well accounted to oil prices. High oil prices translate to increased inflation, which minimizes the purchasing power of an individual and therefore the little purchasing of non-necessities.
As can be seen from the above explanation, the relationship between oil prices and NVIDIAu2019s stock is hardly straightforward. There are various factors and mechanisms that contribute to this correlation, and I have only scratched the surface here. A higher price of oil drives up the production cost for NVIDIA due to energy-intensive processes such as chip fabrication. This results in lower profit margins. A higher price of oil also reduces consumer spending. When people have less money to spare, they are less likely or able to purchase gaming consoles and graphics cards. Another factor is investor perception. I believe that some investors see a higher oil price and expect an economic slowdown, therefore initiating a sell-off in tech stocks. How much does the energy market affect NVIDIAu2019s stock? This depends on how long high or low oil prices last and I cannot and must not give a definitive answer. Therefore, high and consistent oil prices could contribute to a drop in NVIDIAu2019s stock prices for the reasons mentioned above. Conversely, steady or decreasing oil prices could lead to a rise in NVIDIAu2019s stock prices . However, the energy market is only one factor and is not absolute.
The above information should be taken into account when deciding whether to buy or sell NVIDIA stock. However, I believe that this should not be the determining factor. As previously stated, this information can give investors additional information to choose the right action. More precisely, it can be assumed that investors will assess the viability of the proposed company that is less dependent on the price of oil or that they will simultaneously buy oil futures to cover possible fluctuations in its price. At the same time, assessing whether the price of NVIDIA shares will change tomorrow is difficult because this is influenced by many factors, the exact value of which cannot be accurately predicted. However, the investor can use the correlation between oil prices and automotive stocks, as well as information about the company and its business sector, to provide an educated guess about the situation with the stock. In this case, it should be noted that if, in the near future, it is possible to expect a significant increase in the price of oil tomorrow, such a position promises to worsen the situation with NVIDIA shares. And, on the contrary, if the price of the latter stabilizes or falls, then this will have a positive effect on the forecast. In conclusion, I would like to note that the correlation described above is not always and not necessarily correct. Indeed, even if the first factor works, then other macroeconomic factors can distort the situation.
