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NVIDIA Corporation (NVDA) Analysis: Overbought Stock Facing Near-Term Pressure, Long-Term Growth Potential

StockInvest.us, 3 weeks ago

NVIDIA Technical Analysis

NVIDIA Corporation (Ticker: NVDA) closed at $1,096.33 on May 31, 2024, experiencing a slight decline of 0.78% from the previous trading day. The stock traded between $1,069.40 and $1,127.17, indicating high intraday volatility. The Relative Strength Index (RSI14) at 78 suggests that the stock is currently overbought. The 50-day and 200-day moving averages stand at $907.39 and $636.06, respectively, illustrating a strong upward trend over the medium to long-term.

The MACD for the 3-month period is positive at 54.97, reflecting bullish momentum. However, the Average True Range (ATR) of 4.11 indicates significant price fluctuation, which could imply near-term volatility. The stock faces immediate resistance at $1,105, and support is placed around $1,037.99.

Fundamental Analysis

NVIDIA's market capitalization is a staggering $2.70 trillion, underscoring its dominant market presence. The expected Earnings Per Share (EPS) for NVDA is $17.13, with a Price to Earnings (PE) ratio of 64 suggesting that the stock might be trading at a premium relative to its earnings. Earnings are set to be announced on August 28, 2024, which could act as a catalyst for significant price movement.

The analysts' consensus targets show a wide range with a high of $1,400, a low of $133, and a median of $1,145. The consensus median target indicates possible upside potential, although the discounted cash flow (DCF) valuation presents a more conservative estimate of $526.14, implying the stock may be overvalued at its current levels.

Notably, NVDA does not currently offer a dividend yield, which could be a detractor for income-focused investors. The technical indicators and fundamental metrics should be closely watched, especially given the recent positive news flow surrounding the company's potential to become the second-most valuable company, primarily due to its pivotal role in artificial intelligence (AI).


Next Trading Day (June 03, 2024)

NVIDIA Given the high trading volume of 60.48 million shares, surpassing the average volume of 49.57 million, NVDA is likely to remain in focus. The overbought RSI level might lead to a short-term pullback, potentially towards the immediate support level at $1,037.99. However, strong bullish momentum could see the stock testing the resistance of $1,105, especially if investor sentiment remains positive.

Upcoming Week

For the week, NVDA might experience heightened volatility due to the anticipated 10-for-1 stock split on June 7, 2024, which typically can lead to increased retail investor interest. The stock's performance will also be influenced by broader market trends and any new developments in the AI sector, where NVDA is a key player. Short-term investors should be cautious of potential profit-taking given the stock’s substantial year-to-date gains.

Intrinsic Value and Long-term Investment Potential

From a longer-term perspective, while NVDA's DCF suggests a significant overvaluation at current market prices, the company's strategic position in emerging technologies like AI provides a compelling growth story. The high PE ratio reflects market expectations of strong future earnings growth.

The recent news about NVDA's ascent in market capitalization rankings underscores its dominance and potential in the tech sector. However, one should consider the sustainability of such rapid growth, as highlighted by experts.

Overall Evaluation

Considering all factors, NVIDIA Corporation (NVDA) appears to be a 'Hold'. The stock's current overbought state and lofty market cap warrant caution for new entries. However, long-term prospects remain robust given its strategic AI positioning and significant institutional buy-in, as indicated by the strong buy consensus from analysts.

Thus, investors might hold their current positions while monitoring any new developments closely, especially regarding its earnings and AI market performance.

Check full NVIDIA forecast and analysis here.