Predicting what technologies will be prevalent in ten years is difficult. Who’s to say whether the dominant smartphone will be Apple’s (NASDAQ:AAPL) iPhone or Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Pixel? But Nvidia (NASDAQ:NVDA), and Nvidia stock are easier to bet on because the company is powering the technological pillars of tomorrow.
Many sectors, including agriculture, transportation, drones and cloud computing, are turning to artificial intelligence. Often referred to as A.I., this technology requires an insane amount of computing power. The company best suited to provide that computing power is Nvidia. As a result, NVDA and Nvidia stock are in prime position to be long-term winners.
Earlier this year, I took a very in-depth look at Nvidia and all of its long-term catalysts. I suggest reading the column if you are curious about the company’s long-term outlook. I would not necessarily say that the company’s catalysts make NVDA stock a screaming buy, but they do make the shares worth considering for long-term investors.
Valuing Nvidia Stock
Nvidia stock was on an unsustainable flight path, rallying hundreds of percent in just a few years. In Oct. 2015, NVDA was changing hands in the $16 range. Now in the mid-$160s, NVDA is still up ten-fold from those levels. At its high near $300, NVDA stock had jumped almost 18 times from its late 2015 levels.
Despite the pullback of Nvidia stock, Nvidia’s core business hasn’t been knocked off course. Previously, crypto miners were inflating demand for the company’s products, but that trend has since slowed greatly, hurting Nvidia’s results,
Advanced Micro Devices (NASDAQ:AMD) experienced a similar phenomenon, although that company has done a better job of sidestepping the pain. As it stands, AMD is forecast to have positive earnings and revenue growth this year and explosive growth next year.
Unfortunately for Nvidia, it’s not in the same boat.
Analysts, on average, expect its sales to slump 8% this year and predict that its earnings will tumble 18.8% in 2019. Investors are already aware that this is a down year for NVDA and that there’s not much to be done about it. But NVDA stock is treading higher in recent weeks, even as the trade war continues.
The biggest risk facing Nvidia stock, in my view, is estimates for next year, Nvidia’s fiscal 2021. Analysts, on average, expect its top line to jump nearly 20% to $12.91 billion and predict that its earnings per share will surge about 31% to $7.08.
Those figures would surpass Nvidia’s fiscal 2019 results and put it back on the path of growth. They would also makes its forward price-earnings ratio, which currently trading at 23.6, more reasonable. If the average estimates materialize, and the trailing 12 month P/E ratio of Nvidia stock stays around its current level of 38, its price would reach roughly $270.
Trading NVDA Stock
$270 does not seem like a great price for many investors, given that NVDA stock was once trading near $300. But, with NVDA currently at $167, we’re talking about a $100 move or a 60% gain. It would at least give Nvidia stock some positive momentum.
Since bottoming in December, Nvidia stock has tended to go on steady rallies, before correcting back down. It’s not the most bullish price action you’ll ever see, but it’s at least constructive. On the plus side though, each correction has bottomed at a higher low, as the purple arrows on the chart above show.
That trend could end, particularly if Nvidia’s growth is slower than expected or if the trade war intensifies. But for now, it’s a positive step in the right direction. It’s also positive to see Nvidia stock surpass its major moving averages, which it did earlier this month.
On the upside, I want to see Nvidia stock clears $175. Not only would that put the stock above its post-earnings highs, but it would clear a notable level in the process. By reaching that level, NVDA would put its 2019 highs near $193 on the table and leave the charts indicating a larger move in the future.
On the downside, I would really like to see NVDA stock stay above its major moving averages. If it cannot do so, make sure that NVDA stock does not close below its August lows. If it does, the low-$130s will be on the table.