Through the first four months of 2017, Nvidia Corporation (NASDAQ:NVDA) was down about 2%. Not a great start for one of 2016’s best-performing stocks. But its 34% rally in May has thrust NVDA stock back into the spotlight. Shares hit new highs on Wednesday, but where’s it going from here?
Bulls are hoping that it has regained its upward momentum and the rally still has legs. Bears are hoping the top is near and Nvidia stock will cascade lower once again.
NVDA Stock: Fundamentally Speaking
Nvidia stock took off earlier this month on better-than-expected earnings results. Revenue grew almost 50% year-over-year and earnings climbed a whopping 85%. Management said deep learning/A.I. is what’s helping drive the business higher. A.I. is not a short-term phenomenon. Think of it like the cloud five or ten years ago. Companies like Salesforce.com, Inc. (NYSE:CRM) have made a killing in this arena and many in tech are betting that A.I. is next.
NVDA is centering itself squarely in the middle of this field, which again, is great news for long-term investors. Deep-learning product customers include International Business Machines Corp. (NYSE:IBM), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), Facebook Inc (NASDAQ:FB) and Baidu Inc (ADR) (NASDAQ:BIDU) and Tencent.
More so, Nvidia is also making strides in self-driving cars, data centers, the cloud and gaming. While it pleases investors to see a company positioned in strong growth markets, it means nothing if management can’t deliver. Thankfully, NVDA management can.
Nvidia has beat on earnings and revenue estimates for seven straight quarters. Even better, in that span, analysts were looking for total earnings-per-share of $3.33. NVDA stock had $4.89 in EPS, a whopping 46.8% more than estimates!
While that’s an impressive feat, it has me wondering about current expectations. Mostly, are they high enough? Analysts are looking for 19.4% sales growth in 2017 and just 12.2% growth in 2018. For earnings, they expect growth of 19.8% this year and 12.7% next year.
If history is any indication though, Nvidia should exceed these estimates. One of two things usually happens: The company’s growth slows or analysts catch up to the fast growth. I’m thinking the latter after a few more blowout quarters.
Trading Nvidia Stock
After being stuck in the doldrums, Nvidia stock has found its mojo again. The last earnings report sent the stock peeking through the $120-level — a prior double top of resistance.
The next session eliminated all doubts though, blasting the stock higher than $130 at one point.
Since then, NVDA stock hasn’t looked back, recently touching $147 per share. While it’s been a great ride for the bulls, momentum is coming into question.
The stock has been overbought for the past few weeks, (orange circle). Additionally, momentum in the MACD appears to be peaking (blue circle). Heck, Nvidia stock is almost $20 per share above its 21-day moving average.
Some consolidation and a small pullback would actually be good for the bull case at this point. A pullback to the low-$130s would likely find support from the 21-day moving average. A larger pullback, to about $120 though, would be the healthiest. First, if prior resistance turned to support, investors would have a measurable level to trade against. Second, by then the 50-day moving average will likely be near that level, providing an additional layer of support.