To be sure, Nvidia (NASDAQ:NVDA) has its share of flaws. But in today’s market environment and looking forward into 2021, Nvidia stock appears every bit a champ for investors’ portfolios. Let’s explore what’s happening off and on the price chart, then offer a risk-adjusted position that ‘pays-to-play’ with stronger odds of longer-term success.
With the broader market at all-time highs and one mainly supported by large-cap technology names like Amazon (NASDAQ:AMZN), Zoom Video (NASDAQ:ZM) or Peloton (NASDAQ:PTON), whose diverse and customer-facing businesses have helped many of us navigate the challenges of the Covid-19 pandemic, it would be easy to lose sight of Nvidia. But right now that would be a big mistake for investors.
Off the price chart, late November’s earnings report displayed Nvidia’s ever-forceful semiconductor tendrils which power markets ranging from data centers to 5G and mobile devices. It’s the behind-the-scenes muscle that’s not necessarily tangible for many of today’s essential goods and services. Moreover, Nvidia’s products will continue to be a huge force with what is possible when Covid is in the rearview mirror.
In a nutshell, the third quarter proved a knock-it-out-of-the-ballpark-style event as Nvidia delivered Street-topping record revenues of $4.73 billion, spearheaded by year-over-year sales growth of 162% in the outfit’s data center business, and 37% sales increase in gaming. Nice, right? It gets better.
To hear it straight from the horse’s mouth of CEO and founder Jensen Huang, “NVIDIA is firing on all cylinders, achieving record revenues in Gaming, Data Center and overall.”
If there was any chink in Nvidia’s latest confessional, it may have been the company’s admission data center revenues would decline sequentially in Q4 and acknowledging some supply chain constraints for manufacturing its latest chips and systems. To be fair, those warnings aren’t going to help shape shares into anything less expensive than they appear today to seasoned investors who know their way around the balance sheet and income statements.
Nvidia Stock Weekly Price Chart
Source: Charts by TradingView
It’s what the best growth stocks do and often enough, for long periods of time. They remain expensive-looking and out of reach of investors focused squarely on the financials. On occasion, rather than crashing in valuation and satisfying those concerns with a discount to fair value, shares go ever higher and eventually grow into their valuation.
Right now, NVDA stock looks like one of those situations.
Technically speaking, the other thing the best growth stocks do for investors that are watching, is to offer buying opportunities during corrective phases on the price chart. Sometimes these bases are shallower and longer in duration. At other times, such as during March’s bear market when cries of the world coming to an end where in full force, a dizzyingly spectacular “V-shaped” pattern emerges.
Currently, Nvidia is putting together a ‘flawed’ or irregular ‘W,’ or high-level, double-bottom corrective base. What’s interesting about today’s pattern is within this base, shares are trying to stage a breakout from a three-week long lateral congestion zone.
Along with a supportive oversold stochastics crossover signal, there’s decent evidence for purchasing technical value without catching a falling knife or relying on a classic momentum-driven breakout through the pattern’s high at much higher prices.
For investors that are agreeable with what’s been laid out, I’d recommend the January $500 put / $600 call collar combination. As of Monday’s close, it’ll cost investors about 50 cents over Nvidia shares to ‘pay-to-play’ in Nvidia. But as a stock worthy of being a core holding, this limited, reduced risk and very flexible trend and accumulation strategy, stacks up favorably in an imperfect world.
On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.