- Nvidia (NVDA) stock is under temporary pressure.
- Long term the thesis remains bullish.
- Despite short-term risks there is a path to $250.
The quick story today is that Nvidia (NASDAQ:NVDA) stock is facing short-term trepidation. But the long-term prognosis favors owning shares. If markets are higher in the future, then so is NVDA. Meanwhile, it is safe to say that investors are on edge. This includes equities, bonds, currency and Bitcoin (BTC-USD). There are many sources of fear all with potentially serious consequences. NVDA stock bulls need to step up this week, otherwise, there will be more short-term losses.
In addition to the scary geopolitical unrest in Ukraine, we have major economic risks looming. Central banks have been loose with monetary conditions for too long. The U.S. Federal Reserve has decided that it was time to end its quantitative easing programs. They’ve embarked on doing the opposite, so their policy now is to slow things down.
Therefore, it is not a surprise to see NVDA stock struggle to hang on the dear life. It’s not alone because Advanced Micro Devices (NASDAQ:AMD) is the canary in the coal mine. It’s a step ahead of Nvidia because it already fell below its important $100 neckline. The downside target of this can bring AMD below $70 per share.
There is still a chance to save it, but if not, then it will drag the sector with it. Nvidia has no issues specific to it, but it cannot rally alone. This means NVDA stock needs to recover and hold the $210 level. Otherwise, the bears will try to test the support at $178 and $157 per share. If the bulls can hold a decent level this week, the rebound will likely reach $250 per share.
The Long-Term Case for NVDA Stock Remains Intact
So far we have not approached the fundamental aspect of this company. That’s because it is beyond reproach, as it is now the leader in the segment. The bullish thesis for the whole chip sector is alive and well. The runway for all of them is a mile long. The whole world is going digital, so we will exponentially need computer brain power to run things. There are absolutely no demand concerns for Nvidia or any of its competitors. They are all likely to thrive and for a decade.
Nevertheless, the stock price action in the short term is independent of that to a degree. Sentiment has soured on Wall Street and the bulls need to change the narrative. Unfortunately, the argument of “value” will not emerge for a while. Even now, NVDA stock is not cheap. In fact, it is almost twice more expensive than AMD. It’s even worse if you compare it to Intel (NASDAQ:INTC), which is the king of value in the sector.
For now, Nvidia bulls will have to rely on intestinal fortitude, and their willingness to defend it. This cannot happen if the stock market is also falling. Therefore, the mega-earnings this week will influence what happens to NVDA. This means that the moves in Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) matter.
Markets tend to move in unison within a few exceptions. Nvidia isn’t one, so if the indices are falling, then it will too. This week the Nasdaq is an inch away from triggering another bearish pattern with 15% of downside risk. There’s still time to save it, but so far it looks precarious. The next few days will be critical, so watch the pin action off Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN).
Those who are already long NVDA stock shouldn’t add to the risk. New investors should only deploy partial entries first. Going all in now does not fit the level of risk that’s around it. Just this week we’ve had a new crisis in the currency markets. Because of the Federal reserve’s tight monetary policy, the U.S. Dollars exploded against the Chinese Yuan. Equities so far are hating that fact this week. So much now depends on how far is the Fed willing to push the rhetoric.
On the date of publication, Nicolas Chahine 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.