After a stunning 2016, Nvidia Corporation (NASDAQ:NVDA) is looking like a mere mortal. So far in 2017, Nvidia stock is down 7%-plus. The pause in momentum for the benchmark Technology SPDR (ETF) (NYSEARCA:XLK), as well as the Market Vectors Semiconductor ETF (NYSEARCA:SMH), has some growth investors concerned. NVDA stock jumped to the stratosphere, but we all know gravity’s beckoning call.
Broader factors that are not directly related to Nvidia shares are also weighing on Wall Street. Military analysts consider North Korea’s recent missile launches as practice for a potential assault on U.S. bases in Japan.
Domestically, allegations about Russian involvement in last year’s general election continue to dog President Donald Trump. Furthermore, his wild accusation of being wiretapped by his predecessor have left both the country and the markets jittery.
Technically, Nvidia stock is not providing the best of signals. Since early February, NVDA is down an astonishing 18%. And since Feb. 23, Nvidia shares have been firmly below its 50-day moving average. Traders carefully watch this barometer as an indicator of nearer-term strength. What worries vested parties is that NVDA has largely trended bearishly since breaching this key level.
With multiple headwinds working against Nvidia stock, should investors risk exposure or cut tail while the going’s good? A little trimming wouldn’t hurt, but the overall prognosis still looks promising.
Nvidia Stock: Slow Start, Fast Finish
Let’s start with the technical argument. I would be careful in looking too much into recent momentum. Remember that during last year’s record-breaking move, the company didn’t jump straight from the gate. Nvidia shares rang in 2016 with a near-17% loss up to mid-February. Back then, not only was NVDA below its 50-day, it was dangerously close to falling below the 200-day.
Rather than being a harbinger for Nvidia stock, that level turned out to be the buying opportunity of a lifetime. History doesn’t always repeat itself, that I’ll easily concede … but I will also argue that viable investment opportunities maintain a certain cadence. Investors can use this data to determine the likelihood of whether their positions will turn out profitable.
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When the year is finally tallied, investors have taken home 55% average profits. As I said earlier, nearer-term momentum isn’t always a reliable barometer.
What is a reliable indicator is the first-quarter performance. Only one time did Nvidia stock turn negative at the 90-day mark, and still managed to squeeze out a profit in the full year. So if NVDA stock is in red ink on March 31, then yes, it’s time to think about exposure.
But if it ends up in the black, I like my chances. Only twice did NVDA do well in the first quarter, and go sour later in the year.
The Fundamental Case for Nvidia
Fundamentally as well, I don’t see how you can go wrong with Nvidia stock. The company is integrated with the most exciting developments in digital technologies — automated driving, virtual reality and artificial intelligence. As innovators like Tesla Inc (NASDAQ:TSLA) continue to push the boundaries of what is possible, NVDA will be right there.
Furthermore, it’s unlikely that the company will lose its dominance in its field of specialty. As a result, Nvidia is in good hands. As Blue Chip Growth editor Louis Navellier states:
“The company has been in the computer graphics business for more than two decades — it invented the GPU in 1999 — so it is a well-established player. To date, Nvidia owns 7,300 patents relating to computer graphics, the largest portfolio of its kind.”
Furthermore, NVDA isn’t just innovating, it’s finding tremendous success. InvestorPlace contributor Ryan Fuhrmann writes that during the fourth quarter, “Nvidia reported that data center revenue tripled and that AI is being rapidly adopted throughout the world. Total revenue jumped 55% to $2 billion.” Sure, the recent technical slowdown is newsworthy, but come on! You have to look at the bigger picture.
All in all, Nvidia stock is a buying opportunity. I totally get the concerns about acquiring NVDA at a lofty price point. However, I don’t consider it to be a “trap valuation.” The company witnessed incredible success and they have a proven track record. Any weakness is a natural correction toward the next leg up.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
