Nvidia (NVDA), a giant in data centers and gaming, continues to sizzle. The chip giant is seen as one of the biggest winners of the AI boom. Is Nvidia stock a buy right now, with earnings due next week?
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Semiconductor, AI News
On Aug. 14, Morgan Stanley analysts said Nvidia remains their top pick among chip stocks ahead of its earnings report. They see a “massive shift” in spending toward AI (artificial intelligence) and demand for AI chips outstripping supply.
Other analysts pounded the table for Nvidia ahead of upcoming earnings.
Earlier in August, Nvidia unveiled a more powerful AI super chip coming next year: the next-gen GH200. And the Financial Times reported that China’s internet giants are rushing to acquire high-performance Nvidia AI chips, putting in orders worth $5 billion.
Nvidia taps the emerging market for generative AI. Generative AI can create content, including written articles, from simple phrases by analyzing vast amounts of data. It can also write computer programming code.
For those looking for the top large-cap stocks to buy now, here’s a dive into the AI chip leader.
Nvidia Stock Technical Analysis
Shares of Nvidia rose 2% on Aug. 15, rallying for a second straight day. The chip stock soared 7% on Aug. 14, reclaiming the 50-day line as Morgan Stanley named it a top pick. Both gains came in higher volume.
Nvidia stock has cleared the 21-day line and right at short-term trendline. Investors could use the Aug. 15 intraday high of 542.68 as a specific buy point, still fairly close to the 50-day line.
Investors should bear in mind that Nvidia increasingly stands alone. The broader market continues to sell off, including many other chip and AI leaders. Further, its upcoming earnings report raises the risk.
NVDA joined the prestigious IBD Leaderboard in February on an earnings gap-up. It surged again in May on blowout earnings and strong guidance.
Year to date, Nvidia stock has skyrocketed nearly 205%, after crashing in 2022. The chip stock set a 52-week high on July 14.
The relative strength line is not far from recent highs, the IBD MarketSmith charts show. A rising RS line means that a stock is outperforming the S&P 500. It is the blue line in the chart shown.
NVDA earns an IBD Composite Rating of 95, out of a best-possible 99. In other words, Nvidia stock is in the top 5% of all stocks in terms of technical and fundamental metrics.
Investors generally should focus on stocks with Comp Ratings of 90 or even 95 and above. Nvidia stock often earns a spot on the IBD 50, Big Cap 20 and Sector Leaders lists.
The IBD Stock Checkup tool shows that NVDA carries a Relative Strength Rating of 99. That means it has outperformed 99% of all other stocks over the past year.
The iShares PHLX Semiconductor ETF (SOXX) holds both Nvidia stock and AMD stock.
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Nvidia Earnings
Nvidia’s EPS Rating is 68 out of 99 and its SMR Rating is a B, on a scale of A to a worst E. The EPS rating compares a company’s earnings growth to other stocks. Its SMR Rating gauges sales growth, profit margins and return on equity.
On May 24, the chip giant delivered a big beat-and-raise report. The Nvidia earnings report included a bullish, AI-fueled sales forecast.
The Santa Clara, Calif.-based company earned $1.09 a share on sales of $7.19 billion in the quarter ended April 30. Year over year, Nvidia earnings dropped 20% while sales fell 13%. But the results easily outpaced Wall Street’s expectations.
In Q1, data-center sales rose 14% to $4.28 billion. Gaming-chip sales fell 38% to $2.24 billion.
For the full year, analysts expect Nvidia earnings to rebound 142% as sales jump 63%. Last year, Nvidia earnings fell 25% per share.
Its next quarterly report is due on Aug. 23, after the market close.
Out of 50 analysts covering NVDA stock, 43 rate it a buy. Six have a hold and one has a sell, according to FactSet.
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NVDA Backstory, Rivals
The fabless chipmaker pioneered graphics processing units, or GPUs, to make video games more realistic. It’s expanding in 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. It’s working on “supercomputers” combining its own CPUs and GPUs.
In addition, Nvidia chips are used for Bitcoin mining and self-driving electric cars.
Nvidia has made a big push into metaverse applications.
Fabless chip stocks include Qualcomm (QCOM), Broadcom (AVGO) and Monolithic Power Systems (MPWR).
Currently, the fabless group ranks No. 16 out of 197 industry groups. Fabless companies design the hardware while outsourcing the manufacturing to a third-party firm.
For the best returns, investors should focus on companies that are leading the market and their own industry group.
Is Nvidia Stock A Buy?
On a fundamental level, Nvidia earnings are expected to return to growth. They should more than double this fiscal year, driven by booming chip sales for data centers and artificial intelligence.
The fabless chipmaker is expanding in other growth areas such as automated electric cars and cloud gaming as well. The adoption of the metaverse and cryptocurrencies could further stoke demand for Nvidia chips.
However, macroeconomic uncertainties and risk of global recession linger.
NVDA stock has staged a massive comeback, more than tripling in 2023 so far. Shares are flirting with a new trendline entry after regaining key technical levels. The AI chip leader’s upcoming report and overall market conditions are also factors to consider before making any new or bolt-on purchase.
Bottom line: Nvidia stock is not a buy right now, but it’s close.
As a chip company with exposure to top growth markets, Nvidia is always one to watch.
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