Nvidia (NASDAQ:NVDA) shares have been roasting, up a remarkable 95% for the year and more than 150% from the lows. While NVDA stock has become one of the hottest large-cap names in the market, investors are undoubtedly wondering how long the run can go on.
It’s crushing Intel (NASDAQ:INTC), which is up just 13% from the March lows. Even though Advanced Micro Devices (NASDAQ:AMD) has come to life lately — rallying more than 50% in 13 days — Nvidia still beats AMD’s low-to-high rally of 137%.
The move has been stunning really. While it’s clear in hindsight that NVDA stock was a steal below $200, that deal didn’t last long. Although I thought that was a great long-term buying opportunity at the time, I didn’t know Nvidia was going to go on this type of rally over the next few months.
The same can be said for the broader market, really. In any regard, let’s look at the charts to see if this one has run too far, too fast.
Trading NVDA Stock
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Nvidia shares are now butting up against the $450 level, which is the two-times range extension from the March low to the February high.
A lot of investors seem to forget that Nvidia was trading quite well in February, bursting to new all-time highs over $300. The rally, which came on earnings, was soon met with sellers. That’s as the high in NVDA stock coincided with the highs in the stock market before the novel coronavirus came sweeping through.
Instead, most investors remember Nvidia for its peak-to-trough decline of more than 50% in the fourth quarter of 2018, followed by its choppy 2019 campaign.
We’re in a nimble spot at the moment. With earnings on Aug. 19, Nvidia stock could either dip ahead of the print — as tech is struggling lately — or rally into the report.
To be clear, the charts do not reflect a wildly overbought condition. Despite the lofty gains in a relatively short period of time, the stock is simply in a very strong uptrend. A break of that uptrend changes the narrative. But until that happens, investors are looking to buy dips and push through resistance.
Currently Nvidia has the potential to put $500 in play, followed by a 261% extension up near $535.
A dip below $440 would be healthy, putting the 20-day moving average and uptrend support in play (blue line). Below that and bulls may get a potentially great buying opportunity near $400. For the time being, the 50-day moving average is also nearby, although it’s still trending higher.
Valuing Nvidia Stock
Even though this comes across as poor taste (and I hate saying it), Covid-19 may have been a good thing Nvidia bulls. It had an earnings report as close to the coronavirus sell-off that we could have had.
So not only did we have a very current update to the business, but we actually had a global pandemic unfold that accelerated demand for Nvidia’s products. I don’t really like to say that, even though I have been a long-time bull on this name. But the facts are the facts.
At the start of the year, consensus earnings and revenue estimates stood near $5.60 per share and $10.8 billion, respectively. Now, those same estimates stand at $8.14 per share and $14.67 billion, significant increases over the last six months. In-line results will generate year-over-year gains of 40.6% and 34.4%, respectively.
Estimates for next year call for another strong year, too. Analysts expect 18% revenue growth and 22% earnings growth. Will the stock gains slow as investors shift their focus from this year’s growth to next year’s growth? Probably. But if an investor bought at $250 or $300, do they really care that the stock pauses after clearing $400? They shouldn’t.
The fact is that demand remains strong for Nvidia’s data center, artificial intelligence and gaming products. Recent reports have new gaming GPUs supposedly on the way.
Friends, there’s no other way to put it: Nvidia has robust growth right now and that growth is likely to extend into the future. So long as that remains true and so long as shares remain in a longer-term uptrend, NVDA stock is a buy on the dips.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVDA.
