Shares of Nvidia Corporation (NASDAQ:NVDA) were about flat from January 2017 to early May. Like a nitwit, though, I didn’t take the opportunity to load up on NVDA stock. Then, I saw it skyrocket through $100, up to nearly $170 and finally to its current $145. The question is, now what?
There’s no doubt that NVDA is one of the most attractive companies in the stock market, let alone in tech. Its stock, on the other hand, isn’t quite as attractive.
Momentum in the Fundamentals
With its hands in self-driving cars, artificial intelligence, gaming, datacenter, cloud and other growth areas, what’s not to like? NVDA has ridden these growth engines to serious gains, both in its financial results and its stock price.
Nvidia stock shares are up a whopping 210% over the past 12 months and a near-stupid 607% over the last two years. The company beat EPS and revenue estimates for seven straight quarters.
Q1 and Q2 of fiscal 2017 saw modest revenue growth of 13% and 24.3%, respectively. But, in Q3 and Q4 that growth rocketed to more than 50%. In the first quarter of fiscal 2018, NVDA grew sales by more than 49% and the momentum looks set to continue.
Last quarter, gaming revenue topped $1 billion, a near-50% increase year over year. Data center revenue of $409 billion grew 186%, nearly tripling “as more of the world’s computer scientists engage deep learning,” founder and CEO Jenson Huang said. “The AI revolution is moving fast and continuing to accelerate,” he added.
The rest of the revenue breakdown can be found, here.
Nvidia also announced various partnerships with leading companies like Bosch, Paccar Inc (NASDAQ:PCAR), Facebook Inc (NASDAQ:FB), International Business Machines Corp. (NYSE:IBM), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) via its Google Cloud division, among others.
Simply put, Nvidia’s got its mojo and it’s not going away anytime soon.
Trading NVDA Stock
Unfortunately, while Nvidia’s business is super attractive, its stock is not. Trading at more than 12.5x times sales and more than 40x forward earnings estimates is expensive. Despite the monster revenue growth in recent quarters, analysts only expect overall sales to grow about 20% this year and next. On the earnings front, forecasts call for approximately 20% growth this year and 13% in fiscal 2019.
Realistically, how much upside could be left, given the current valuation for NVDA?
Nvidia has been blowing away analysts’ expectations. Most recently, guidance for next quarter again came in above consensus. But, in order for Nvidia stock to continue its rally, these types of blowout results will be necessary.
There’s a lot going on in the chart. First, the recent pullback. We can see where NVDA stock blew-out near $170. Momentum was exhausted (noted by the MACD in the purple circle) as NVDA quickly embarked on a notable pullback.
For super short-term traders, there’s a level of support around $145 (green line). However, I wouldn’t put a whole lot of faith into this level holding unless using a very tight stop-loss. On that note, a larger, tech-wide pullback would almost guarantee NVDA stock falls through this level. The PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) has been struggling and a larger pullback could develop.
If so, hopeful bulls can pray for a pullback down to $120. This was previously a large level of resistance for NVDA. Additionally, it’s a big breakout level for it, too. Nvidia stock would have nearby support from the 100-day moving average and the rising 200-day coming up just below it.
The Bottom Line on NVDA Stock
Nvidia runs an excellent business, but I can’t help but feel that I missed the boat. The valuation is nearly impossible to be bullish on while future growth expectations only questionably justify said valuation.
Despite the valuation concerns, NVDA is worth buying on a decline toward $120.