The last time I weighed in on NVIDIA (NASDAQ:NVDA) stock, I said it was another “blood-in-the-street” opportunity that could refill its bearish gap at $300 a share. That was on March 25, when NVDA stock reached a low of $243.66.
At the time, I argued that when it comes to NVIDIA, investors should ignore the noise and focus more on its long-term opportunities in gaming, data centers, autonomous vehicles, and artificial intelligence.
Since then, NVIDIA has rocketed to $352, a gain of over $100 in two months.
While I strongly believe the stock could rally to $400 this year, NVDA stock is overdue for a healthy pullback. Now only is it overextended at its upper Bollinger Band (2.20), but it’s overbought based on relative strength (RSI), MACD, and Williams’ %R.
I’d wait for a healthy pullback before buying the shares.
NVIDIA Still Has Plenty of Positive Catalysts
As I noted on March 25, NVIDIA will benefit from the new video-game consoles coming out later this year. Then, as consoles and games get better, more processing power will be required to run them. That means NVIDIA will sell even more chips. Considering that gaming is thriving amid the pandemic, the sector’s growth is not likely to slow any time soon.
Thanks to “stay at home” orders, Nvidia benefited from a 50% jump in gaming hours on its GeForce platform. Plus, in its most recent reported quarter, its gaming revenue soared 27% year-over-year to $1.33 billion.
NVIDIA’s Bottom Line Will Be Boosted by Other Trends
The company’s data center business is growing impressively, too. Its data center revenue soared 80% year-over-year to $1.14 billion, which beat the average estimate of $1.08 billion.
In Q1, NVIDIA’s total revenue soared nearly 40% YOY to $3.08 billion. That was also ahead of the average analyst estimate of $2.98 billion. Its earnings per share, excluding some items, were $1.80, which also beat the mean estimate of $1.68.
NVIDIA provided Q2 revenue guidance of $3.65 billion, which was above the average estimate of $3.15 billion.
“Nvidia had an excellent quarter,” CEO Jensen Huang said. “The acquisition of Mellanox expands our cloud and data center opportunity. We raised the bar for AI [computing with the launch and shipment of our Ampere [graphics processor].”
Working from Home Is Another Strong Catalyst
The work-from-home trend may be here to stay for quite awhile.
Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) have already said many of their employees can work from home from now on.
“If our employees are in a role and situation that enables them to work from home and they want to continue to do so forever, we will make that happen,” said Twitter.
In addition, a CNBC|SurveyMonkey survey showed that, “83% of tech workers say they’ve been able to work from home in recent weeks, and many want their new routines to stick. More than a quarter (27%) say they’ll want to work from home all the time from now on, and 36% say they’ll want to work from home more often than they used to. Just 5% say they’ll want to work from home less often than they had previously, and a mere 2% never want to work from home again.” according to CNBC contributors Laura Wronski and Jon Cohen.
“Stay at home” orders have also driven a shift towards cloud computing. With more folks working from home, the reliance on remote computing has risen.
The Bottom Line on NVDA Stock
In March 2020, I said NVIDIA was a solid “blood in the street” opportunity, and I was right. I’m bullish about the stock’s long-term outlook due to the company’s gaming and data-center strength. But in the short-term, I strongly believe that NVDA stock is overdue for a healthy pullback from overbought conditions.
Investors may want to consider buying the stock on a pullback and waiting for it to reach at least $200 per share before selling it.
Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
