NVIDIA Corporation Analysis: Overbought Conditions Signal Potential Correction

NVIDIA Corporation (NVDA) Technical and Fundamental Analysis

Technical Analysis

NVIDIA Corporation (NASDAQ: NVDA) closed at $120.91 on June 11, 2024, down $0.88 (-0.72%) from the previous trading day. NVDA's stock price oscillated between $118.74 and $122.87, inching closer to its year-high of $125.59. The Relative Strength Index (RSI14) stands at 81, indicating the stock is in overbought territory and might be due for a short-term correction.

The stock's 50-day moving average at $94.40 and 200-day moving average at $66.17 indicate a robust upward momentum, aligning with the positive Moving Average Convergence Divergence (MACD) of 9.74. The Average True Range (ATR) of 3.89 suggests moderate volatility, aligned with the current market sentiments.

Key support levels are noted at $113.90, with immediate resistance just slightly above the closing price at $120.998. The stop-loss is set at $116.34, reflecting strategic risk management. The high volume of 220.67 million, although below the average volume of 476.28 million, affirms sustained interest in the stock.

Fundamental Analysis

NVIDIA, with a staggering market cap of $2.97 trillion, continues to showcase its dominance in the semiconductor sector. Despite a lofty Price-to-Earnings (PE) ratio of 71.12, investors' confidence is fortified by an EPS of $1.70. Future performance projections are optimistic, bolstered by recent analyst endorsements and raised price targets. Notably, Evercore ISI's revision to $145 and Oppenheimer and Argus's positive remarks post-split suggest strong growth potential.

Significant tailwinds such as advancements in AI and data center applications contribute to a forecasted consensus target price of $857.3. This consensus is indicative of projected long-term appreciation. Furthermore, the recent stock split introduces potential accessibility and perceived affordability, factors historically associated with bullish sentiment.

On the intrinsic value front, the discounted cash flow (DCF) estimate of $55.14 is significantly lower than the current market price, suggesting that NVDA may be overvalued at present levels. However, the announcement of upcoming earnings on August 28, 2024, and the next dividend on June 28, 2024, keep investor interest piqued, despite a minimal dividend yield of 0.01%.

Analyst sentiment is highly favorable, with 42 out of 45 analysts rating it as a strong buy or buy, reinforcing a solid consensus towards upward momentum.

Prediction and Overall Evaluation

Next Trading Day (June 12, 2024): Given the current overbought RSI conditions and resistance near the closing price, NVDA may experience some profit-taking or consolidation around the $120 level. However, strong analyst sentiment and recent positive news might continue to provide underlying support, limiting downside movement.

Upcoming Week: A potential minor pullback or consolidation phase could be expected as the stock digests recent gains. Buoyant sentiment and robust fundamentals are likely to keep it well-supported above $115, with any dips providing potential buying opportunities.

Intrinsic Value and Long-Term Investment Potential: Despite trading above its DCF-based intrinsic value, NVDA's strong market position, consistent topline growth, and favorable analyst outlook indicate robust long-term investment potential. NVDA's leadership in high-growth sectors like AI, gaming, and data centers underpin its long-term growth trajectory.

Overall Evaluation

NVDA is currently classified as a 'Hold' candidate. While short-term technical patterns suggest limited near-term upside, the strong long-term growth potential supported by robust fundamentals and analyst endorsements implies that it remains a valuable component of a long-term investment portfolio. Investors should monitor near-term resistance levels and any potential pullbacks for optimal entry points.