Each Dip in Nvidia Stock Is a Gift for Long-Term Investors


A few weeks ago, Nvidia (NASDAQ:NVDA) was finally breaking out to new highs. While NVDA stock hitting new highs was a nice achievement, the enjoyment was short-lived. Unfortunately, high-growth tech stocks have been under intense pressure lately.

A racecar featuring Drive PX 2 technology from Nvidia (NVDA) parked.
Source: Steve Lagreca / Shutterstock.com

In fact, one could very well argue that this specific group of stocks are in a painful bear market. That’s even as many stocks — including the overall market — are very much not in a bear market. 

For instance, most large-cap tech stocks have avoided such a fate. Instead, they continue to trade in a multi-quarter consolidation pattern. Nvidia is trying to avoid falling back into its consolidation range, which is good, but its fall from the highs is discouraging.

Here’s a perfect lesson for bulls: Don’t be discouraged by short-term pullbacks, be encouraged.

Be Encouraged to Buy the Dip

We are buyers of NVDA stock for one simple reason: it’s building the backbone of technology

It’s in so many meaningful secular trends, it’s getting hard to keep track. Nvidia is a driving force behind artificial intelligence and machine learning, gaming, cloud-computing (including edge-cloud computing), data centers, autonomous driving, graphics and more. 

The semiconductor industry can’t even keep up with demand right now. That’s why we know a company like Nvidia will continue to see its products remain in high demand. 

When the stock broke out to new highs, it did so after the company’s GTC Conference. What is normally an amazing opportunity to meet wonderful (and incredibly smart) people, this year’s event was live-streamed due to the pandemic. Regardless, it didn’t disappoint. 

The company’s presentation caused enough excitement to send shares to new highs. Of course, management’s Q1 update also helped give it a boost. Specifically, Nvidia said its Q1 revenue is tracking above its prior outlook of $5.3 billion due to broad-based strength in its end markets. That’s no surprise when looking at what those end markets are (listed above). 

Keep this in mind, too: When the company reported earnings in February, management’s outlook for $5.3 billion in revenue (plus or minus 2%) came in well ahead of analysts’ expectations for $4.53 billion.

In other words, the company is effectively beating estimates twice. While revenue might not be meaningfully above that prior guide, I expect it to be a pretty solid beat for management to make such comments. 

The simple truth is, Nvidia will enjoy years of solid growth going forward, because its products are helping fuel tomorrow’s technology. That’s clear in the guidance and it’s clear on the quarterly conference calls. That’s why we’re excited about this dip.

Looking at the Bigger Picture for NVDA Stock

Weekly chart of NVDA stock
Click to Enlarge
Source: Chart courtesy of TrendSpider

Ahead of Nvidia’s GTC-inspired breakout, bulls endured months of consolidation. The current dip may be temporary or perhaps NVDA stock is heading back into that consolidation zone. 

If that’s the case, it’s simply an opportunity to accumulate the stock at a lower price. There are certainly worse things we could endure. As Nvidia stock continues to consolidate, consider how much further ahead the company is than expectations previously stood. 

I’m not talking about Q1 expectations, which went from $4.5 billion to $5.3 billion and are still too low. I’m talking about full-year estimates. 

Back in October, full-year estimates for 2021 stood at less than $16 billion. At the time, I said current estimates for this year are likely too conservative. They were. Those expectations sit at $22.4 billion and still appear conservative. A year ago, revenue estimates for this year stood close to $13.5 billion. 

Yet, despite revenue estimates climbing more than 40% in the last six months, the stock price is flat. 

Friends, this is an opportunity

When the stock price stays flat, yet expectations continue to rise, NVDA stock is simply resting. When it’s done resting, there’s no telling where it can rally to. Zoom out and stop focusing on the day-to-day, tick-by-tick price action. Nvidia is a winner and it has monster growth left in the tank. Patient investors will reap big rewards. 

On the date of publication, Matt McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article held a long position in NVDA.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.  

Article printed from InvestorPlace Media, https://investorplace.com/moneywire/2021/05/each-dip-in-nvidia-nvda-stock-is-a-gift-for-long-term-investors/.

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