NVDA's Resilient Performance Indicates Potential Upside

StockInvest.us, 2 months ago

NVIDIA Technical Analysis

NVIDIA Corporation (NASDAQ: NVDA) closed at $943.59 on May 16, 2024, marking a slight decline of 0.29% (-$2.71) for the day. Despite this daily dip, NVDA remains strong above its 50-day ($881.32) and 200-day ($606.97) moving averages, illustrating sustained upward momentum. The Relative Strength Index (RSI14) at 64 indicates a moderately overbought condition but not excessively so, suggesting further upside potential before hitting resistance levels.

The Average True Range (ATR) is relatively high at 3.84, pointing towards significant volatility. Current support is placed at $875.28 and resistance at $946.30. Given the near breach of the resistance level and with MACD at 12.34 (indicating bullish momentum), NVDA might test higher levels soon. However, the stop-loss is calculated at $906.32 to manage downside risk.

Fundamental Analysis

NVDA's high P/E ratio of 79.16 reflects strong investor optimism about future earnings growth. Current EPS stands at $11.92, indicative of a profitable core business. The upcoming earnings announcement on May 22, 2024, is a crucial event as it will provide concrete insights into their financial health, particularly in their data center and AI segments.

However, relative valuations present nuanced challenges. The discounted cash flow (DCF) valuation of $542.33 suggests the stock may be overvalued in the context of intrinsic value, which indicates a significant discrepancy compared to the current market price of $943.59. This divergence necessitates cautious monitoring of any corrections in the stock price.

Market Sentiment and News Impact

Recent news has painted a mixed picture. Stanley Druckenmiller’s reduced stake in NVDA may cast doubt on some bullish beliefs. Meanwhile, Microsoft’s planned competition with AMD against NVDA in AI processors could pressure market sentiment. Conversely, positive anticipation surrounds the forthcoming earnings announcement, which might offset these concerns.

NVIDIA Analyst consensus is bullish overall, with strong support from 36 buy ratings against a minimal number of sell or hold opinions. Price targets vary widely, with a median of $700, indicating a significant range of views on future potential.

Short-term Outlook

For the next trading day (May 17, 2024), NVDA may see an upward movement towards $946.30 if bullish momentum continues past the current support levels. However, given the recent pullback and competition news, cautious trading might dominate, potentially resulting in a sideways movement.

Looking at the week ahead, the key event is the earnings report on May 22. Positive results, especially in data center revenue and new product announcements, could trigger a rally. Conversely, any failure to meet or exceed expectations could exert downward pressure.

Intrinsic Value and Long-term Investment Potential

Despite high short-term volatility, NVDA’s fundamentals reflect strong long-term potential, driven by robust earnings from AI and data center markets. The intrinsic value, as derived from the DCF model, signals possible overvaluation in the current market, suggesting the need for a potential price correction.

However, the company’s innovation strength and leading market position in GPU technology support a positive trajectory over the long term. NVIDIA's strategic partnerships and expansion into quantum computing and AI bolster its growth narrative.

Overall Evaluation

Based on the technical and fundamental analysis, NVDA appears to be a 'Hold' candidate. While current market valuations suggest short-term caution, the consistent upward momentum and strong long-term growth prospects present a balanced risk-reward scenario. Therefore, it remains essential for investors to observe near-term market reactions and the upcoming earnings report to reassess positioning.

Check full NVIDIA forecast and analysis here.