Nvidia (NASDAQ:NVDA) stock has become a frustrating investment for longs. Over the last five years, NVDA has gone from a stock left for dead to becoming a driver for tech innovation. Certainly, in the coming years, Nvidia chips will probably power many of the latest technological advances.
The recent trading patterns of NVDA stock have left many investors confused. The stock has twice bounced back from close to the $130 per share level.
However, with the stock seeing two significant pullbacks since October, Nvidia stock seems to lack a catalyst that will take it back to its highs. Until investors see more convincing price action, they should probably avoid Nvidia stock.
Nvidia Has a Solid Future
Rarely do investors see such a stark divergence between short term and long term. In the long run, prospects appear bright for NVDA. Nvidia should remain a leader in artificial intelligence (AI), virtual reality (VR), self-driving cars, and data centers, on top of its core gaming capabilities. Also, its recent move to acquire Mellanox (NASDAQ:MLNX) will likely bolster its data center capability.
To be sure, NVDA faces still competition from old rivals, Intel (NASDAQ:INTC) and especially AMD (NASDAQ:AMD). As our own Tom Taulli states, AMD may have even taken the performance lead on PC gaming hips.
InvestorPlace contributor Dana Blankenhorn also mentions the AI-based cloud solution will also put Nvidia at odds with Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT).
Still, I also agree with Taulli that this challenge from AMD will likely spur Nvidia’s R&D arm to speed the pace of innovation. Blankenhorn also points out that the development of the SuperPod should further demonstrate this competitive edge. As consumers and businesses widely adopt this technology, NVDA will probably rise well above the $292.76 per share record high.
NVDA Is Range-Bound
Unfortunately for Nvidia bulls, it will take years for any of this to help investors. Buying NVDA now for its long-term prospects could lead to years of frustration. Here’s why.
With the stock price close to $170 per share, it has risen substantially from its intraday low of $132.60 per share in early June. Admittedly, many would envy a 28% return over six weeks. Still, less than six weeks before hitting that low, NVDA peaked an intraday high of $192.81 per share before the drop.
We do not know for sure what NVDA will do until we see how it behaves at the low-$190s per share level again. However, the price action indicates it may have become stuck in a range. At this point, I think investors should consider this a range-bound stock until proven otherwise.
At the $170 per share price level, that means investors have slightly more than a 10% upside before the Nvidia price nears the top of that range. The downside of the range would mean a 20% to 25% loss. Hence it makes little sense to buy at this level.
It also does not pay to buy and wait for the eventual long-term upside. NVDA has built a six-year streak of dividend increases. I also see little that would compromise future annual payout hikes. However, the 64-cent per share annual dividend yields only 0.38%. Traders can earn more than that on their money at the bank without the risk.
The Bottom Line on Nvidia Stock
Until proven otherwise, investors should assume that NVDA is a range-bound stock. Nvidia stock looks like a buy below $140 per share. It also becomes a likely buy if it stops falling below the $190 per share level. Hence, at around $170 per share, traders have more potential downside than upside in the short term.
Once Nvidia’s technologies see widespread adoption, the range should break. However, without a catalyst, investors face a negligible payout and possibly years of range-bound trading in their future. Until Nvidia gives traders a reason to buy it, I would stay away.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.