Nvidia (NASDAQ:NVDA) stock was trending upward on Friday upon expectations of a partial trade deal. However, as the details of the deal became clear, NVDA gave back most of its gains. The question for investors is, what now?
The stock is up 43% for the year, but that doesn’t tell the story. NVDA stock started the year down nearly 50% from its high in 2018. Since then, NVDA has bounced up over 50%, then down 30%, then up and down.
The trend looks positive, but not perfect. There have been higher lows, but the highs have not always been higher. In fact, Nvidia stock looks like it’s settling into a range.
Can No News Be Good News for Nvidia Stock?
One reason for the price movement is the amount of news surrounding the stock. In March, the company picked up Amazon (NASDAQ:AMZN) as a customer for its data centers. The stock jumped about 30%.
However, the ongoing trade war continues to weigh on the stock. It’s hard to ignore a market that provides 44% of sales for Nvidia. And increased competition from Advanced Micro Devices (NASDAQ:AMD) in the gaming space is putting pressure on the company’s margins.
But that’s the way it is with semiconductor stocks. Every story (good or bad) will generate strongly positive and negative opinions. So, what will it take for Nvidia stock to break out?
All Eyes Are on the Earnings Report
A potential catalyst for the stock will be a positive earnings report. NVDA is scheduled to report on November 14. Nvidia has posted a slight beat on earnings in each of the last three quarters. If the company can follow suit this quarter, it could support the $217 price target that at least one analyst has forecast.
In fact, two analysts have raised their price targets for NVDA. This price target announcement caused the stock to jump over 1% last week even before the announced trade truce.
Betting Big on Data Centers
If nothing else, the trade truce may remove any obstacles China would put in place to prevent NVDA’s acquisition of Mellanox Technologies (NASDAQ:MLNX). This deal, valued at $6.9 billion dollars, will allow NVDA to become a much larger player in the growing data center market. As InvestorPlace contributor Brad Moon wrote last week, “In 2018 alone, companies like Microsoft (NASDAQ:MSFT) and Amazon spent $152 billion on hardware and software for data centers.”
The analysis firm RBC projects that Nvidia’s data-center revenue could rise by 100% in the near term, with sustained growth in the high-double-digit percentage range.
Nvidia Is Well-Positioned in the AI Space
From agriculture to self-driving cars, Nvidia has its hands in many applications for artificial intelligence. However, as the cryptocurrency crash showed, this is, and will continue to be, a volatile space.
I wrote back in September that relying on AI may not be enough for Nvidia. The market bid up the stock in 2017 only to see those gains wiped out when the crypto bubble burst. It’s likely the market will be far more cautious this time around.
What to Make of NVDA Stock Right Now?
For all the ups and downs of this year, I believe the stock is probably priced right. The semiconductor sector is historically cyclical and volatile. And with the company looking at a loss of sales to China for the foreseeable future, there will be pressure on earnings. The company is still dominant in the gaming space, but the big growth for that sector will be coming with the release of new consoles next year.
Any or all of these stories could turn out to provide a catalyst for NVDA stock. And some key technical indicators provide optimism. NVDA shares are above the 10-week moving average. And the 10-week moving average has moved above the 40-week line. Also, the company’s relative strength line is starting to increase after lagging for the better part of a year.
However, a wide range of analysts’ opinions about NVDA suggests to me the stock is in for some short-term volatility. Nvidia stock probably got overvalued in 2018, and then got undervalued this year. Right now, it’s working toward a fair valuation.
I am in no way suggesting that investors should not take a long position in NVDA. However, I think the short-term presents some obstacles that can’t be dismissed.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
