NVIDIA Faces Key Earnings Test Amid High Valuation and Market Volatility as Stock Holds Steady

Technical Analysis

NVIDIA Corporation (NVDA) closed at $128.30 on August 27, 2024, reflecting a modest increase of 1.46%. The stock has encountered resistance at $129.37, just above the current trading price, and has established support at $120.99, indicating a firm floor amid volatility. The recent Relative Strength Index (RSI) of 79 signals that the stock is approaching overbought territory, which may lead to short-term price corrections. The stock is trading above both its 50-day ($120.84) and 200-day ($86.48) moving averages, reinforcing its bullish trend. The Average True Range (ATR) of 5.01 suggests a relatively high level of volatility, which could impact price movements in the upcoming trading sessions.

The earnings announcement is scheduled for August 28, 2024, with substantial expectations from analysts, given the ongoing AI spending surge among large technology firms, which should provide a favorable backdrop for sales growth.

Fundamental Analysis

NVIDIA operates in a rapidly evolving market, primarily focused on artificial intelligence and GPU manufacturing. The current PE ratio of 75.03 appears high compared to historical norms, indicating that the stock may be overvalued at these levels, but investor enthusiasm surrounding AI technology could justify this valuation. The discounted cash flow (DCF) analysis reveals an intrinsic value of approximately $62.66, significantly below the current market price, suggesting potential reconsideration of the stock's value in due course.

Recent news regarding CEO Jensen Huang selling millions of shares may raise eyebrows, although such actions are not uncommon and may reflect personal financial decisions rather than company performance concerns. Still, it signals a need for cautious interpretation among investors.

Short-term Predictions

For the next trading day (August 28, 2024), anticipations are high for NVDA's earnings report. Positive results may drive the price closer to its resistance level, potentially hitting $129.37. Conversely, if the earnings fail to meet the heightened expectations, a pullback could see the stock test the support level of $120.99. For the upcoming week, sentiment may remain volatile, oscillating within a range defined by the established support and resistance levels, influenced heavily by earnings-related news.

Intrinsic Value and Long-term Investment Potential

The marked disparity between the current price and the DCF valuation suggests that investors should exercise caution. The projected growth in the AI sector is robust, bolstering long-term investment potential, but valuation metrics signal a risk of correction. Analysts categorize NVDA as a "Buy" based on a consensus view, defined by its strong market position, growth prospects, and dominant role in AI-related GPU sales.

Overall Evaluation

Considering the technical indicators, fundamental metrics, and market sentiment, NVDA is categorized as a "Hold." The stock remains potent in terms of long-term potential driven by AI trends; however, short-term valuations indicate heightened risks. Investors may prefer to observe the stock's performance post-earnings announcement before making further commitments. The prevailing high valuations and potential volatility necessitate a cautious approach in the current market climate.