Not too long ago, Nvidia (NASDAQ:NVDA) stock could do no wrong. At the highs, Wall Street experts unanimously said that it was the stock to own in every portfolio. Nvidia hit $290 per share at its all-time high.
Since then, Nvidia stock has fallen off a cliff. It’s now under $150 and can’t even hold a rally. In March it showed some promise, but that too failed. The bulls couldn’t even fill a giant open gap from its horrendous November earnings report.
I recently wrote a note that it could be headed to $200 per share, but since then, that effort also failed. Now it’s back to the December lows while the S&P 500 remains 21% off its lows. Clearly NVDA stock is out of favor on Wall Street.
Looking Forward in NVDA Stock
So what now? Is it time to panic out of it?
No.
If I still am long Nvidia at this level, it would be a mistake to capitulate right here. This is a proven bounce level for the stock, so I can probably count on it continuing to be so until it’s lost. Technically speaking, the stock has been in a descending lower high trend bouncing against a proven floor. More often than not, the floor holds, making a rally from these level likely. To open a new trap door from these low levels, I bet it will take incrementally bad news.
But the risk is there, so it’s important to know where it lies. If the bears are able to breach this support, then they would trigger a pattern to target $98 per share. This is not my forecast, but it is the negative scenario that looms below.
NVDA valuation helps the bulls here. At $290 per share it was too expensive, as the price crash proves. But at these levels here the trailing price-to-earnings ratio is down to 30. This is relatively cheap if I compare it to something like Advanced Micro Devices (NASDAQ:AMD). It is still almost three times as expensive as Intel (NASDAQ:INTC) — but for good reason. But maybe you get what you pay for, as AMD is up almost 80% year to date, while for the same period NVDA is up 8% and INTC is red.
Fundamentally speaking, the demand on Nvidia products and services will continue to be strong for years to come. This is a premier technology company and one of only a few that will power the tremendous global migration to the digital world. We have a new world of AI and self-driving cars coming soon. This trend is not likely to reverse anytime soon.
Nvidia’s technology is solid, so they show no evidence of managerial flubs. So as an investor, I continue to give them the benefit of the doubt that they will continue to successfully execute on their plans.
So to recap so far, here are my assumptions: I acknowledge that NVDA is no longer popular on Wall Street, but that alone is not a bad thing. And they have value here and very little froth left to shed. And most importantly, they still provide excellent products.
So I can buy NVDA stock for the long-term, and I don’t worry about the short-term dips for as long as my assumptions remain true. For those who prefer to trade around the short-term levels, there are some lines to know.
Above $147, it could target $156 per share. But there are resistance levels in the way. On June 5, there was a sharp reversal from $146.20, so I have to mark it as important as well. Conversely, if the bears can break through $139.75, they could get the chance to set a new low below $132.
There are outside factors too. It is important to note that any rallies in Nvidia stock will need the help of the global equity markets. We are still under the threat of geopolitical headlines because of the economic wars that are going on, so it would be smart to take positions in tranches and not all at once. This would leave room to manage dips.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room free here.
