Amid the broader market selloff in October, NVIDIA Corporation (NASDAQ:NVDA), has also come under pressure. Despite NVDA price falling from the $290’s to the $240’s level, investors would be better off waiting a few more weeks before they invest in NVDA stock.
The Growth Story for NVIDIA Is Still Strong
A darling among investors over the past few years, Nvidia stock gets a lot of attention among the chip stocks. Their GPUs have earned a superior reputation compared to competing GPUs, especially within the gaming industry. Gaming accounts for almost 60% of Nvidia’s total revenue. Year-to-date, NVDA shares are up over 25%. Clearly the fundamental stable growth story — based on the sales of GPUs for gaming and AI servers — has attracted investors.
When Nvidia last reported earnings on Aug. 16, it showed a strong balance sheet, showing revenue growth and increasing margins.
However, analysts have highlighted that the crypto craze, which has been waning in 2018, cannot be entirely relied upon for further growth in the GPU business. Wall Street is also noting that the semiconductor and chip industry, which is highly competitive and cyclical, has entered bear-market territory. Recently, Nvidia’s competitors, such as Micron Technology (NASDAQ:MU) and Advanced Micro Devices (NASDAQ:AMD), have had wide price swings, falling considerably without any substantial news. Could it be that these chip stocks reached the peak of their valuation in the eyes of value investors?
I think Nvidia’s fundamental growth story remains intact.
Despite the headwinds in the industry, Nvidia’s graphics processors are in top demand, not only in video games but in data centers and workstations. Industry experts regards NVDA as the top player in the AI chip space, and its graphics chips are highly sought after in deep-learning applications.
NVIDIA CEO and founder Jensen Huang has indeed shifted the focus of the company from processors to providing the full tech backbone for AI ecosystems. As artificial intelligence and machine learning continue to become a high-growth area and corporate-spending priority, Nvidia should grow its AI business exponentially.
So Is It Time to Buy NVDA Stock?
Nvidia is expected to report earnings around Nov. 8. Between now and then, several of NVDA’s key competitors, such as Intel (NASDAQ:INTC), and AMD, are set to report earnings. Any weakness in their actual earnings or the outlook for the chip stocks could negatively affect the rest of the industry, including NVDA stock.
Therefore, it might still be too early to hit the buy button on Nvidia.
Furthermore, the volatility in the broader tech sector — and thus the setback in NVDA shares — is likely to continue for several more weeks. Nvidia stock’s 52-week price range has been between $180.58 (Dec. 5, 2017) and $ 292.76 (Oct 2, 2018). Within the next two months, I expect NVDA stock to trade between $255 and $215.
Those investors who pay attention to moving averages and oscillators should note that NVDA’s technical message is a “sell.”
NVDA’s price has fallen in eight of the last 10 days, another sign of weakness from a technical perspective. Short-term support for MU is first at $238 and then at $232; meanwhile, short-term resistance in Nvidia stock is first at $248 and then at $253. In the next few weeks, trading in NVDA stock is likely to be choppy, with major up and down days. And the up moves will probably be short-lived.
The Bottom Line on Nvidia Stock
Although NVDA stock will continue to reward investors in the long-term, the next few weeks may bring more volatility in technology stocks. NVDA stock will need to stabilize and build a base again before a long-term sustained leg up can occur.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
