Nvidia (NVDA) is a data center and gaming giant, with AI chips being a growth opportunity. A surge in earnings at the end of May added to already massive gains in 2023. Is Nvidia stock a buy as it maintains its high perch?
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Semiconductor, AI News
On May 24, graphics chip maker Nvidia crushed Wall Street targets for its first fiscal quarter with record data center sales.
Chief Executive Jensen Huang said his company is ramping up production to meet massive demand for artificial intelligence (AI) technology.
Customers use NVDA chips for AI applications, including generative AI. In the tech industry’s uphill battle for AI dominance, the advanced chips needed for generative AI, such as the ChatGPT chatbot, are essential.
For those looking for the best large-cap stocks to buy now, here’s a dive into NVDA stocks.
Technical analysis of Nvidia stock
The chip stock jumped more than 24% on May 25 earnings and extended its gains on May 26.
Shares reached an intraday high of 394.80 on May 25, surpassing their previous high of 346.47, reached in November 2021.
On May 1, Nvidia stock had passed a buy point of 281.20 after a tight three-week pattern. Its most recent entry was support at the 10-week line last week, around 277.
The shares are now well extended. In fact, NVDA stock is nearly 100% above its 200-day moving average. So, investors might consider taking profits now, but perhaps not selling unless other red flags appear. Many leaders peak once they reach 70% to 100% above their 200 day lines.
Year-to-date, Nvidia shares are now up more than 165% after crashing in 2022.
NVDA earns an IBD composite rating of 98 out of 99. In other words, Nvidia stock outperformed 99% of all other stocks in the IBD database in terms of combined technical and fundamental measures.
Investors should generally focus on stocks with Comp ratings of 90 or even 95 and above. Nvidia stock often earns a place on the IBD 50, Big Cap 20 and Sector Leaders lists.
The relative strength line hit an all-time high on May 26 with the stock, according to IBD MarketSmith charts. A rising RS line means a stock is outperforming the S&P 500. It is the blue line in the chart shown.
The IBD Stock Checkup tool shows that NVDA has a relative strength rating of 99. This means that it has outperformed 99% of all stocks in IBD’s database over the past year.
THE iShares PHLX Semiconductor ETF (SOXX) owns both Nvidia stock and AMD stock.
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Nvidia Earnings
Nvidia EPS Ranking is 68 out of 99 and its SMR Ranking is a B, on a scale of A to worst E. The EPS rating compares a company’s earnings growth to that of other stocks. Its SMR rating assesses sales growth, profit margins and return on equity.
On May 24, the chip giant delivered a massive AI-powered beat and raise report. Nvidia’s earnings report, including a super bullish sales forecast, drew superlatives on Wall Street.
The Santa Clara, Calif.-based company earned $1.09 per share on sales of $7.19 billion in the quarter ended April 30. On a yearly basis, Nvidia’s profits fell 20% while sales fell 13%.
In the first quarter, Nvidia’s data center sales rose 14% to $4.28 billion. Its gaming chip sales fell 38% to $2.24 billion.
Analysts expect triple-digit earnings gains for the next few quarters, including the current quarter, which ends in July. They see Nvidia’s earnings rebound more than 116% in fiscal 2024, on a 48% sales surge. Last year, Nvidia’s earnings fell 25% per share.
Of 47 analysts covering NVDA stock, 38 rate it as a buy. Eight have a hold and one has a sale, according to FactSet.
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NVDA History, Rivals
The fabless chipmaker pioneered graphics processing units, or GPUs, to make video games more realistic. It is expanding into AI chips, used in supercomputers, data centers and drug development.
Nvidia’s GPUs act as accelerators for central processing units, or CPUs, made by other companies.
Additionally, Nvidia chips are used for Bitcoin mining and self-driving electric cars.
Nvidia made a big push in metaverse apps.
Fabless chip stocks include Qualcomm (QCOM), Broadcom (AVGO) and Monolithic power systems (MPWR).
Currently, the fabless group ranks 18th out of 197 industry groups. Fabless companies design the hardware while outsourcing the manufacturing to a third-party company.
To get the best returns, investors need to focus on companies that dominate the market and their own industrial group.
Is Nvidia Stock a Buy?
On a fundamental level, Nvidia’s earnings should return to growth. They should more than double this fiscal year, driven by the boom in sales of chips for data centers and artificial intelligence.
The fabless chipmaker is also expanding into other growth areas such as automated electric cars and cloud gaming. Metaverse and cryptocurrency adoption could further fuel demand for Nvidia chips.
However, macroeconomic uncertainties and the risk of a global recession persist.
NVDA stock made a strong comeback in 2023, climbing 165%. But stocks are well beyond the appropriate buy range, and they may need to pull back. Nvidia’s latest earnings report renewed investor confidence in its AI leadership.
Bottom line: Nvidia stock is not a buy. After another profit spike, NVDA looks high and existing investors may be taking some profits off the table. As a leading chip company with exposure to major end markets, Nvidia is always one to watch.
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