It seems, for now, like the collapse in Nvidia (NASDAQ:NVDA) stock has ended. Nvidia stock has bounced about 20% from late December lows. Of course, NVDA stock still sits more than 40% below October highs.

Indeed, NVDA was one of the biggest victims of the market-wide sell-off that began in early October, and it’s been one of the bigger beneficiaries of the “buy the dip” response to late December lows. But the decline in Nvidia stock wasn’t caused just by broad market fears which means the bounce is going to take more than investors looking for bargains.

And at least in the near term, I’m skeptical there’s a catalyst for further upside here. NVDA fell sharply after Q3 earnings in November, largely due to weak guidance for the fourth quarter.

With those Q4 earnings on the way next month, Nvidia is likely to show little, if any growth. Pricing pressure caused by a cryptocurrency mining glut isn’t going away any time soon. And news from chip rivals suggests pricing across the semiconductor space is getting worse, not better.

Longer-term, the case for NVDA stock still looks intriguing, given multiple potential drivers. But the 17% rise in NVDA in the first three weeks of 2019 might be as much as investors can expect.

The Pricing Problem

The key question facing NVDA at the highs was whether it was an exception to the semiconductor rule. As chip stocks soared in recent years, investors seemed to forget that the semiconductor business historically has been a tough one. This wasn’t just true of Nvidia, but also of rival Advanced Micro Devices (NASDAQ:AMD) and memory play Micron Technology (NASDAQ:MU).

Pricing generally falls; performance has to steadily improve. Demand and supply imbalances often lead to cyclical booms and busts. A chip shortage leads prices to soar, production increases to meet the demand, and even as suppliers insist that this time they won’t overproduce, a glut eventually emerges and prices and earnings plunge.

Chip bulls last year began to argue that the cyclical days were over, as secular demand drivers like IoT (Internet of Things) and cloud computing would lead to years of rising sales. Semiconductor stocks like NVDA now could be – and were – valued like other tech plays.

That thesis has been blown up, with Nvidia’s Q4 a key reason why. And recent news suggests that pricing and supply will be a problem for some time. Taiwan Semiconductor Manufacturing (NYSE:TSM) slashed guidance coming out of its Q4 report last week.

Even NVDA bulls have lowered 2019 projections. And Nvidia CFO Colette Kress seemed to give relatively muted commentary toward pricing, China, and datacenter at a recent conference.

It looks like it’s going to get worse (or at best stay bad) before it gets better for Nvidia. And so it seems unlikely that Q4 results next month will do much for Nvidia stock.

The Long-Term Case for Nvidia Stock

Long-term, admittedly, there’s still a case for NVDA. The major growth drivers here, datacenter, automotive, even gaming, still exist. The valuation assigned NVDA looks much more reasonable, at about 20x earnings backing out the company’s net cash. Analysts remain behind the stock, with an average price target of $228 suggesting over 50% upside.

I’m simply not sure I see a catalyst ahead. Q4 numbers are likely to be disappointing. There’s pricing pressure across the industry. And I do wonder whether NVDA is the best “buy the dip” play in the depressed chip space.

Equipment manufacturer Applied Materials (NASDAQ:AMAT) looks attractive, as I wrote last month. Micron stock seems to have bottomed after earnings.

More broadly, Nvidia stock clearly is a “show me” story. Even 20x earnings, which sounds cheap in the context of tech, is a relatively high multiple for a chip stock.

It’s a multiple that still incorporates long-term growth in the context of the still-real semiconductor cycle. It’s going to take at least two quarters for Nvidia to show that growth and reignite investor confidence.

Some investors may see that as reason enough to buy here, and simply wait for growth to come around. Personally, I think the opportunity in NVDA will still be there for the first half of 2019 at least, and potentially at a lower price.

As of this writing, Vince Martin has no positions in any securities mentioned.