Artificial intelligence actions Nvidia (NVDA) and Arista Networks (ANET) tops this weekend’s watchlist of five stocks near buy points. In addition to NVDA and ANET stock, the group includes Datadog (DDOG), whose computer network monitoring software business is expected to be boosted by the adoption of AI.
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Credit card processing giant MasterCard (MA) and DexCom (DXCM), a leader in blood glucose monitoring systems for diabetic patients, rounds out the list.
The DDOG stock is part of the IBD 50 flagship list of top growth stocks, while NVDA is part of the elite IBD Leaderboard equity portfolio.
For now, the powerful stock market rally remains intact, after Wall Street dodged a possible bullet in Friday’s jobs report. A sharp decline in private sector job growth, which has helped contain the rise in the 10-year Treasury yield, should keep the Fed from panicking about the inflation outlook.
Nvidia and these other stocks have moved sideways in recent days or weeks, largely because the overall market has been rangebound since mid-June. So be sure to read IBD’s The Big Picture every day to stay in tune with the direction of the market and what it means for your trading decisions.
Stock Nvidia
NVDA stock ranks first among S&P 500 gainers this year, up 191%, largely on the back of its hit forecast on May 24, as it gathers momentum to meet massive demand for its chip technology enabling AI.
Nvidia forecast second-quarter sales of $11 billion, up 64% year-over-year, shattering Wall Street’s consensus estimate of $7.2 billion.
NVDA stock jumped 24% in the next session and continued to push higher. That’s despite news in late June that the Biden administration is moving toward tighter restrictions on AI-enabled chips in China.
Yet even amid this negative news, NVDA stock held up. In each of the past three weeks, NVDA stock has risen or fallen less than 1.5%, drawing a tight four-week pattern. This establishes a new buy point, if NVDA stock breaks above the top of the 439.90 range. Investors could use Friday’s high at 432.14 as an early entry.
Still, a more constructive entry for investors could come if Nvidia forges a new base, taking some time to digest its big gains. A slight pullback towards its 21-day exponential average could also provide an opening.
ANET Share
Arista sells computer network switches that speed up communications between racks of computer servers clustered in “hyperscale” data centers. In 2022, Facebook-parent Metaplatforms (META) accounted for 26% of Arista’s revenue, while Microsoft (MSFT) contributed 16%.
ANET stock jumped 23.5% in the three sessions following Nvidia’s second-quarter forecast. The demand for AI chips is seen as a precursor to the demand for more bandwidth for computer networks.
It remains to be seen how quickly the impact of AI on the networking sector will be.
At a JPMorgan technology conference on May 23, Arista CFO Ita Brennan spoke cautiously about a potential AI boost.
“We’ve deployed a few use cases for AI, but it’s relatively small. I think we see it as a good foundation for future momentum and demand, especially from some of the larger large hyperscale customers.”
After the late May surge took ANET stock past a buy point of 171.44, the shares fell back below the 50-day moving average before rebounding. In recent days, ANET stock found support on its 21-day line. A move up from here could see ANET stock break a declining trend line from its May 30 high and offer an entry point.
The networking giant also has a new base with a buy point of 178.36.
DDOG Stock
Datadog operates a monitoring and analytics platform for software developers and information technology departments. The company has a partnership with Amazon Web Services, the cloud computing unit of Amazon.co.uk (AMZN).
While concerns about slowing cloud computing growth put pressure on Datadog’s stock in the first half of 2023, growing AI workloads are expected to keep demand for its services going.
The DDOG stock carved out a 47 week long cup base with handle. DDOG has a buy point of 103.80, which is the high of the handle hit on June 2. Investors could also view the handle as its own flat base slightly above a lower base cleared in early May. On Friday, DDOG stock rose 1% to 98.02, leaving it about 6% below a buy zone. Stocks briefly crossed the 100 level which had acted as resistance
Mastercard action
Mastercard and competitor Visa (V) are showing strength at a time when consumption is slowing and financial stocks are struggling. Yet, as payment processors, they generate transaction fees but are not exposed to deteriorating credit conditions. Additionally, the entertainment and travel recovery is still underway, and cross-border transactions are particularly lucrative for credit card processors.
On Friday, MoffettNathanson analyst Lisa Ellis raised her price target for Mastercard to 490 from 460, maintaining an outperform rating. She cited “a long trail of cash flow from consumers to businesses, tangible progress in new payment flows, (and a) pandemic-enhanced competitive moat.”
MA stock flirted with a fixed base buy point of 392.20 in recent sessions, before closing down 1.1% at 388.68 on Friday.
DexCom Stock
DexCom updated its long-term financial guidance on June 23, saying it now expects 2025 revenue of $4.6 billion to $5.1 billion, up from $4 billion to $4.5 billion. . That compares to $2.91 billion in 2022.
Stocks initially retreated towards their 50-day moving average, but found support and recovered a buy point of 126.44, according to analysis by MarketSmith. DXCM stock fell 0.8% to 126.71, still in a buy zone. DexCom has bounced off the 21-day intraday line in recent sessions.
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