It’s in an investor’s DNA to always be searching for the next big, big thing on Wall Street. But that doesn’t mean investors have to look far if that search begins with Nvidia (NASDAQ:NVDA) stock.
Today, let’s look at what NVDA stock has to offer investors both off and on the price chart.
Then we’ll look at one risk-adjusted strategy for investing more wisely.
NVDA. It’s the semiconductor market’s uncontested 800-pound gorilla. It’s not the largest by valuation. Taiwan Semiconductor (NYSE:TSM) and its market cap of $542 billion is the richest by that measure.
There are larger chip stocks based on sales. Intel (NASDAQ:INTC) is still the world’s biggest by that calculation. But that’s missing the point and in a huge way.
From data centers to gaming, autonomous autos, cryptocurrencies, artificial intelligence, genomics and computational biology and more, Nvidia’s array of graphics chips, more than any of its peers, play a key role in making those growth markets possible.
With Nvidia’s business tendrils come uncommonly strong and still-building growth trends. These trends should continue to support investors for a long-time to come and well beyond today’s $474 billion valuation.
A Closer Look at NVDA Stock
Nvidia’s most recent quarterly report card in late May was a standout and reflects today’s, as well as tomorrow’s momentum for the chip maker.
The company toppled street forecasts on earnings and revenue beats reflecting year-over-year growth of 103% and 84% respectively for its first quarter. That’s not all though.
Management also offered an above-views sales forecast of $6.30 billion for NVDA stock’s Q2. Not only does that compare favorably to analyst views of $5.5 billion, but it also reflects estimated growth of more 63% relative to 2020.
Deservedly, CEO Jensen Huang acknowledged NVDA’s fantastic and record-breaking results and how “Nvidia continues to do impactful work to invent a better future.”
Today, while investors won’t be the first to recognize NVDA’s momentum off and on the price chart, those friendly trends are still worth the price of admission.
NVDA Stock Monthly Price Chart
Source: Charts by TradingView
If there’s one word right now to best describe NVDA stock’s price action it’s momentum. Since confirming its uptrend in March out of a slightly challenging triangle chalked up to broader market “risk-off” conditions, shares are up a whopping 63%.
Nvidia’s performance stands alone in other ways within the semiconductor universe as well. Three straight months of gains have allowed NVDA to add 45% on the year, wildly outperform its peers and continue setting fresh all-time-highs .
The type of momentum fueling NVDA stock does come with a price though. When the music stops, investors should be prepared for a larger correction to emerge.
Today Nvidia is pressing through its upper Bollinger Band and towards a functional trendline I’ve drawn in. Both are positioned as obvious tests of NVDA’s momentum.
But with stochastics just now signaling a bullish crossover beneath overbought territory and given Nvidia’s recent history of fighting successfully through overbought conditions, I wouldn’t fight the trend.
The Bottom Line
Long exposure to NVDA stock makes sense.
To better prepare for inevitable downside risk (which could be as large as 30%) I’d suggest either a slightly out-of-the-money bull call spread or similar NVDA stock collar. This is best for larger investment accounts which intend to make the chip giant a core growth holding in their portfolio.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.