History Teaches Us That Nvidia Stock Is Bound to Rally Again

Nvidia (NASDAQ:NVDA) continues to be a compelling pick for tech investors. Nvidia is part of many of the big tech stories of the past year, including the global chip shortage, cryptocurrency volatility, the Arm acquisition and the constant fight by PC gamers to find RTX 30 series graphics cards in stock. Throughout it all, NVDA stock has continued its relentless climb, adding another 61% to its value so far in 2021.

Nvidia (NVDA) logo on the indoor wall of a corporate building made of yellow tiles

Source: JHVEPhoto / Shutterstock.com

However, Nvidia’s stock has stalled for the past four weeks. It has moved between the $220 and $228 range.

Currently trading for just under $220, is now the time to make a move? History shows that NVDA doesn’t plateau like this for long — odds are that its next rally is coming.

NVDA Stock and Q2 Earnings

Prior to its current plateau, NVDA stock had been surging. The reason? Stellar second-quarter earnings.

The company reported record Q2 revenue of $6.51 billion. This was up 68% year-over-year, which handily beat forecasts. Gaming revenue — all those RTX 30 series graphics cards — hit $3.06 billion, up 85% YoY. Data center revenue also set a record at $2.37 billion. Adjusted earnings of $1.04 per share (compared to 55 cents a year ago) also beat estimates.

That performance kicked off a three-day rally in mid-August that saw NVDA stock gain 15%.

Crypto Market Disruption Led to Lower-Than-Expected CMP Sales

If you want to find something to pick on in Nvidia’s Q2 earnings, it’s the fact that CMP sales came in well under the company’s estimates. CMP is a graphics card that was designed specifically for the cryptocurrency market. NVDA stock already felt the effect of the tumultuous cryptocurrency market in the summer. When the price of cryptocurrencies like Bitcoin (CCC:BTC-USD) tumble, crypto mining rigs power down. Miners stop buying GPUs.

For Nvidia this was felt in Q2. The company had projected it would sell $400 million worth of CMPs in the quarter. Instead, it sold just $266 million.

This is nothing to panic about. The $134 million shortfall is essentially a rounding error for a company that reported $6.51 billion in revenue. Even the full CMP business if it were worth $400 million would represent just 6% of Nvidia’s total revenue. In other words, this is not 2018. The company’s other lines of business like data centers have grown at a fast pace since then, and the CMP strategy has helped to insulate Nvidia’s core PC graphics card business from the ups and downs of cryptocurrency.

What About the Arm Deal?

A year ago, Nvidia announced it would pay $40 billion to acquire chip designer Arm to create “the premier computing company for the age of artificial intelligence.

The news gave NVDA stock a boost, as you might imagine. However, regulatory approval of the acquisition has proven to be a tough slog for the companies. Delays have pushed the expected closure of the deal into 2022. Chinese and British regulators have serious concerns about the acquisition, and could block it.

Concern about the deal has been part of the story behind the NVDA plateau over the past four weeks. How worried should you be that a collapse of the Arm deal would hurt NVDA stock? While there would almost certainly be a negative market reaction, it would likely be short-lived. If the deal goes though, Nvidia gains access to new markets such as smartphones and opens up royalty streams. If the deal dies, the company’s current business model has been working just fine. In short, don’t sweat it.

In fact, I’d follow the advice of InvestorPlace contributor Mark R. Hake. He suggests that if the Arm deal collapses and NVDA stock drops as a result, you should take advantage of the situation and “buy as much as you can.

Bottom Line on NVDA Stock

Is now the time to snap up some NVDA shares? NVDA stock is up nearly 61% so far in 2021. It’s up over 1,200% over the past 5 years. The stock earns a B-rating in Portfolio Grader, and a consensus “Buy” rating from the 37 investment analysts tracked by CNN Business.

After 4 weeks in a holding pattern, history says that Nvidia stock is going to resume climbing sooner rather than later.

On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (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.

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