The technology and semiconductor sphere is a hit-or-miss affair. Advanced Micro Devices, Inc. (NASDAQ:AMD) perhaps best illustrates this point. You are either the hero or the goat, and that transition can occur inside of a day, in some cases. This discussion segues into Nvidia Corporation (NASDAQ:NVDA). NVDA stock has been one of my favorite talking points — this is a gift that keeps on giving.
But seriously, how much more can Nvidia put out?
As InvestorPlace executive editor Jeff Reeves notes, NVDA stock nearly tripled in price. Contrarian investors are now worried, particularly because shares have nowhere to run.
Another InvestorPlace colleague, Tim Biggam, reports that The Wall Street Journal pegs the consensus price forecast for Nvidia at $125. Needless to say, at the current market value, we are well above forecast, to the tune of nearly 18%.
Not only that, the estimate spectrum ranges from $165 at the top to $44 at the bottom. Per Mr. Biggam, “Even assuming the high price target of $165 per share for Nvidia is correct, that is only 11% upside for NVDA stock from the $149 level. For a stock that has risen so far, so fast, one has to wonder at what price the reward is still worth the risk.”
The question is a fair one. I can see how psychologically jarring it is to buy something in the hopes that momentum will carry you further.
Nvidia stock is a special case because it has jumped so high, and it continues to work magic. Year-to-date, shares are up a thunderous 38%. Following a triple-return in 2016, NVDA seems like a perfect candidate to drop, not buy.
But here’s why this assumption is not always accurate.
NVDA Stock Deserves Its Success
Mr. Biggam gave the disclosure that he’s a contrarian investor. In (slight) contrast, I’m a cryptocurrency guy. Certainly, I love a good discount like anybody else, but I’m also not afraid to mix it up, as the recent surge in the digital currencies bitcoin and ethereum demonstrates.
As a quick aside, the last time I wrote about bitcoin, it was hovering around $900 after briefly hitting $1,000. Those who thought that this was the beginning of a crash were gravely mistaken. Today, bitcoin is a hair under $2,900.
The reason I was so bullish — and still am — on cryptocurrencies was due to the fundamentals. The blockchain technology that drives the digital markets is a “self-intelligent” algorithm that will turn the financial world upside down. In the same manner, Nvidia is an innovative leader across multiple technical disciplines.
The biggest catalyst is the “smart car” phenomenon. According to the Institute of Electrical and Electronics Engineers, driverless technology will be integrated in 75% of road-going vehicles. Nvidia is already leading the charge. By logical extension, NVDA stock is the investment of the future.
But the best part is that it’s also the investment of the present. The company gained tremendous credibility through its advanced graphics processors, mostly because video-gaming is big business. This used to be a sector that appealed only to nerds like me.
For investors, though, Nvidia stock enjoys a plethora of market riches. I wouldn’t get turned off simply because of its extraordinary success. If you ask me, the company deserves the accolades.
Nvidia Stock Is as Easy as 1,2,3
Now, don’t get me wrong — NVDA stock could be due for a nearer-term correction. In fact, I would expect it, and it would be a positive development. I don’t like to see shares explode upward without some consolidation of those gains.
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The first feature that stands out is the long-term trend line. Have you seen anything more beautiful or more robust than NVDA stock?
I didn’t think so. Until we hear news that would upset this powerful dynamic, you don’t have to worry about the company going too far, too fast.
The second and third factors are the establishment of a bullish pennant formation (anchored during the run-up to the 2008 crash), and the current bullish flag formation. These major patterns indicate sustained optimism for Nvidia stock.
Betting against this trend could be disastrous.
The key is patience and context. I don’t think we’re going to see another tripling this year, but that doesn’t mean NVDA stock is a dog. Contrarians are worried about its mercurial rise, but I would argue that this rally is fundamentally sound. Nvidia has an incredible business, and the potential for even greater innovations is very much real. Ultimately, this forward-assessment is what is driving NVDA, not just momentum trading.
As of this writing, Josh Enomoto was long bitcoin and ethereum.
