Nvidia (NVDA) is a giant in data centers and gaming, with AI chips a growth opportunity. Is Nvidia stock a buy after more than doubling in 2023?
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Semiconductor, AI News
Ahead of quarterly earnings from Nvidia, Oppenheimer analyst Rick Schafer on May 18 hiked his price target on NVDA stock to $350 from $300 while keeping an outperform rating on shares. The analysts sees possible upside to Q1 results and outlook.
On May 11, Bank of America analysts called Nvidia the “picks and shovel leader in the AI gold rush.” Earlier in May, Evercore analysts called Nvidia a top pick. And Rosenblatt Securities named NVDA among seven chip stocks that could benefit from higher tech spending around artificial intelligence (AI).
In March, Nvidia announced various initiatives to broaden its reach in AI, including partnerships and new products.
In February, Nvidia delivered a beat-and-raise report driven by its data center segment, which includes AI chips.
In the tech industry’s fierce battle for AI dominance, the advanced chips needed for “generative AI” such as the ChatGPT chatbot are key.
For those looking for top large-cap stocks to buy now, here’s a deep dive into NVDA stock.
Nvidia Stock Technical Analysis
On May 1, Nvidia stock topped a 281.20 buy point from a three-weeks-tight pattern. Shares rose 1.8% to 307.21 May 18, out of buy range, which goes to 295.26.
In April, NVDA stock hit the 20% profit-taking goal from a previous breakout.
After a strong rally fueled by the ongoing AI frenzy, Nvidia shares sit at a year-plus high. They found recent support at the 21-day exponential moving average and remain well above a rising 50-day moving average.
Year to date, Nvidia shares are up 109.9% after crashing in 2022.
NVDA earns an IBD Composite Rating of 97. In other words, Nvidia stock has outperformed 97% of all other stocks in IBD’s database in terms of combined 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 relative strength line made a new high May 18 and is back near November 2021 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.
The IBD Stock Checkup tool shows that NVDA carries a Relative Strength Rating of 98. That means it has outperformed 98% of all stocks in IBD’s database 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 63 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 Feb. 22, Nvidia beat Wall Street’s earnings target for its fiscal fourth quarter and guided higher for the current period.
The Santa Clara, Calif.-based company earned 88 cents a share on sales of $6.05 billion. Year over year, Nvidia earnings dropped 33% while sales sank 21%.
Data center revenue rose 11% to $3.62 billion, fueled by demand for AI chips. However, gaming chip sales remained weak, falling 46% to $1.83 billion.
For the full year, Nvidia earnings fell 25% per share on basically flat revenue.
The chip firm next reports earnings on May 24, for its fiscal first quarter. Analysts expect another weak quarter, but they see Nvidia earnings rebounding 37.4% for the full year, on an 11.6% sales gain.
Out of 46 analysts covering NVDA stock, 34 rate it a buy. Twelve have a hold and no 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.
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. 24 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 and sales are expected to rebound this year.
The fabless chipmaker is expanding in growth areas such as data centers, including artificial intelligence, or AI; automated electric cars, and cloud gaming. 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 strong comeback, up more than 100% in 2023. But shares are now beyond the proper buy range, and they may due for a pullback. The chip giant’s share price gains reflect investor enthusiasm about its AI leadership.
Bottom line: Nvidia stock is not a buy. As a leading chip company with exposure to top end-markets, Nvidia is always one to watch.
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