Nvidia (NASDAQ:NVDA) investors thought the roller coaster ride might be over, but that’s far from the case. Shares were on fire in 2018, surging higher and riding hundreds of percent in return over the last few years. However, NVDA took a dark turn in Q4, falling more than 50% from peak to trough.
Shares hit a low near $124 in late December after peaking near $292 in early October. Despite poor guidance in January, Nvidia stock price quickly digested the news and moved higher. After recently holding steady near $190, we’ve seen another quick landslide in NVDA stock. Shares lost 22.9% for the month of May as the Nasdaq Composite index lost 7.4%.
It’s brutal, but is it an opportunity to get long?
Breaking Down NVDA Stock
Nvidia buried any short-term optimism that I had in the stock last quarter when management didn’t provide a full-year outlook. It suggests to me that, at the very least, the climate can stay turbulent. That really turned me off on NVDA stock, even though it was holding up after earnings on May 16. While Nvidia beat on earnings and revenue, the stock shed almost $20 since then.
Of course, it doesn’t help that this industry is in the crosshairs of the trade war. Nvidia generates a lot of revenue in China, as does Advanced Micro Devices (NASDAQ:AMD). But be it Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM) for their company-specific events, or Broadcom (NASDAQ:AVGO) which has come down with the group, the selling pressure has been intense across the board.
So what do we make of it all?
Plenty of investors love to point out NVDA stock’s price-to-sales ratio. While it was a lot higher nine months ago, it’s not low now at 7.7 times this year’s revenue estimates. However, 26 times earnings isn’t that obnoxious, although investors could make a case that it’s still too rich given that forecasts call for a 20% earnings decline this year. That may prove conservative if the environment remains rocky, as management opts for quarter-at-a-time outlooks given the current climate. Unfortunately, that’s understandable, but it’s hard for an investor.
All that said, expectations call for a notable snap-back next year, with estimates calling for earnings and revenue growth of ~35% and ~20%, respectively. That may not hold up, but I am looking at Nvidia as a pivotal piece to the technological future. Be it in gaming, AI, autonomous driving, data center and more. It’s simply too good to toss out over short-term worries.
Trading Nvidia Stock Price
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We looked at NVDA stock earlier this month, noting that it’s in the midst of a falling wedge pattern. Typically, this setup is bullish, but a break below support was the worry. With shares trading near $144, Nvidia stock price was near support from February and March.
Absent the industry-wide selling pressure, this would typically set up NVDA stock price for a low-risk bounce play. The trade was “low risk” because we had a clear line of support. A close below would negate the trade and limit losses. However, given the industry pressure, more conservative traders in this case would rather wait to see if the stock could clear resistance, rather than bet on NVDA doing so beforehand.
Okay, so that setup is in the trash. Now what?
If management is right, the worst is seemingly behind Nvidia stock at this point. So ~$15 a share off its lows and $10 above where investors stepped in as big-time buyers near $130 throughout Q4 and Q1, and it’s worth giving NVDA stock some attention.
To be honest, it doesn’t feel like the selling is over due to the escalating trade war. But I’m nibbling down here. We’re 52% off the highs and down 20%+ over the past few weeks. This is in an incredibly high-quality company going through a tough stretch right now. $124 to $130 is the downside target and with all of its moving averages trending lower, NVDA stock has its work cut out for it.
I’m not backing up the truck here, but I’m accumulating some equity for the long haul.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVDA and AVGO.
