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Is Nvidia Corporation (NVDA) Stock Back on Track?

NVDA stock rebounded Monday after a nasty week, but this could be just a quick stop before the next round of cooling


Graphics processor maker Nvidia Corporation (NASDAQ:NVDA) is enjoying a cautious bounce back on Monday after some rare post-earnings unpleasantness over the past couple weeks. NVDA stock, which soared a massive 55.8% in the fourth quarter of 2016, has been a popular momentum play because of its exposure to exciting and fast-growing areas such as machine learning, virtual reality/augmented reality and autonomous transportation.

But after reporting better-than-expected results on both its top and bottom lines, as well solid forward guidance, investors had a powerful sell-the-news response in Nvidia stock. Shares pushed below their 50-day moving average for the first time in more than a year.

NVIDIA Corporation (NVDA) stock chart view 1

What should investors watch for in NVDA stock now?

Looking back at its results, the growth is undeniable: Revenues surged nearly 55% from the year prior thanks to a 66.4% jump in gaming sales to $1.35 billion, responsible for about two-thirds of the company’s overall take. The auto segment, which specializes in self-driving systems used by Tesla Inc (NASDAQ:TSLA) and others, saw revenue grow 37.6% to $128 million.

But, if you look hard, there are early signs that expectations could cool. You can see it in the OEM & IP segment, where revenue fell 11.1% to $176 million last quarter. This could be a sign of a slowdown in graphics card sales after the very successful launch of the GTX 1000 series in 2016.

Needham analysts believe gaming revenue growth will slow to an 11% annual rate. Stifel is worried that both seasonality and a high revenue base will also limit gaming revenue growth going forward. Valuations have been a concern as well, resulting in a downgrade of NVDA stock at BMO Capital Markets.

Technically, double-top resistance near $120 will be difficult to overcome despite Goldman Sachs defending the stock and suggesting a buy-the-weakness approach.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.

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