Nvidia (NVDA), a giant in data centers and gaming, is supercharging investor interest in artificial intelligence. Is Nvidia stock a buy after breaking out, with earnings due next week?
Semiconductor, AI News
On Nov. 13, Nvidia unveiled the highly anticipated H200, its latest graphics processing unit for training AI (artificial intelligence) models. The company is supposed to soon announce a new series of AI chips for customers in China. The chips reportedly were designed to comply with new U.S. government export restrictions. The curbs could have led to a possible $5 billion in order cancellations for Nvidia.
On Nov. 15, Microsoft (MSFT) announced a custom AI chip that could challenge Nvidia chips. Analysts say Nvidia could address concerns about AI competition and China during its upcoming Nov. 21 earnings call.
Companies like Nvidia and Microsoft tap 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 programming code.
For those looking for the top large-cap stocks to buy now, here’s a dive into NVDA.
Nvidia Stock Technical Analysis
Shares of Nvidia nudged lower Friday in buy range from their latest breakout. NVDA stock topped a 476.09 double-bottom buy point earlier in November, while scoring a 10-day win streak. The buy zone goes to 499.89, according to IBD Leaderboard.
Volume has been an issue in the latest base, though Nvidia rose Nov. 9 in the highest volume since the base began to form, the IBD MarketSmith chart shows.
The relative strength line for Nvidia stock is forging new high ground, a positive sign. A rising RS line means that a stock is outperforming the S&P 500. It is the blue line in the chart shown.
After a painful 2022, NVDA stock has soared roughly 238% year to date. It mostly held up better than growth stocks at large during recent market sell-offs, while hitting a five-month low in October.
Nvidia stock has rebounded in November along with the rest of the stock market.
Nvidia joined IBD Leaderboard after gapping up on earnings in February. It surged from May to August, hitting an all-time high, on AI-fueled earnings and outlook.
NVDA earns a best-possible IBD Composite Rating of 99. In other words, Nvidia stock remains in the top 1% 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’s EPS Rating is 93 out of 99 and its SMR Rating is an A, 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.
The chip giant has guided third-quarter sales of $16 billion, up 170%. For Q2, Nvidia earnings rocketed 429%, while sales soared 101%.
The Santa Clara, Calif.-based company’s Q2 data-center revenue surged 171%. The data-center business includes the A100 and H100 AI chips needed for AI applications.
When Nvidia reports for the third quarter late Tuesday, analysts expect its data-center unit to more than triple sales and drive earnings growth. While buying a growth stock like Nvidia ahead of a quarterly earnings report is risky, an options strategy can help to limit the risk.
For the full year, analysts now expect Nvidia earnings to rebound 224% as sales jump 105%. Last year, Nvidia earnings fell 25% per share.
Out of 52 analysts covering NVDA stock, 49 rate it a buy. Three 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. 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. 25 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 is poised for explosive growth. Earnings should more than triple 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, cloud gaming and the metaverse as well.
But AI competition is intensifying. Macroeconomic uncertainties linger. Geopolitical risks are also rife, from the U.S.-China trade war to actual war in Ukraine and Israel.
NVDA stock has staged a massive comeback, more than tripling in 2023 so far. It is actionable from the latest breakout past a double-bottom buy point, with a strong RS line backing the move.
Bottom line: Nvidia stock is a buy right now. As a chip company with exposure to top growth markets, NVDA is always one to watch.
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