Chip Giant Undercuts Key Levels Despite Strong Chip Outlook
Nvidia (NVDA) chips power a future of self-driving cars, cryptocurrencies, cloud gaming and the metaverse. NVDA now sees chip supplies improving throughout 2022, but is Nvidia stock a buy?
X
Nvidia has a strong track record of earnings beats. On Feb. 16, the chip giant easily topped earnings views for the fourth quarter and guided higher.
For those looking for top large-cap stocks to buy now, here’s a deep dive into NVDA stock.
NVDA Stock Basics
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, drug development and driverless cars.
For example, it will supply the chip that acts as the “brain” for the Nio (NIO) ET7, which will be a highly autonomous electric vehicle when it arrives this quarter. And Nvidia already supplies Amazon (AMZN) Web Services with chips for data centers.
Nvidia’s GPUs act as accelerators for central processing units, or CPUs, made by other companies. In April, Nvidia unveiled its first CPU, called Grace, which uses chip designs from U.K.-based Arm for high-end computing. With its own CPU, Nvidia will offer a more complete system for data centers, directly challenging processor giants Intel (INTC) and Advanced Micro Devices (AMD).
In addition, Nvidia chips are used for Bitcoin mining.
Nvidia Stock Technical Analysis
Shares of Nvidia earn a superior IBD Composite Rating of 91. In other words, Nvidia stock has outperformed 91% of all other stocks in terms of combined technical and fundamental metrics. In fact, NVDA belongs to the IBD Leaderboard, a list of stocks with the most potential for big gains. It also belongs to the IBD 50, Big Cap 20 and Sector Leaders lists.
Investors generally should focus on stocks with Comp Ratings of 90 or even 95 and above.
NVDA peaked in November 2021, tumbling in the recent growth-led selloff. Despite its Feb. 16 beat-and-raise, Nvidia stock fell hard. It undercut the 10-week moving average and has now fallen below the 40-week line.
Guidance for an unchanged profit margin in the current quarter may have disappointed some investors.
Nvidia has a lot of repair work to do, with no new buy point so far .
The relative strength line for NVDA stock has fallen sharply from record highs in November. The strength indicator rallied for much of the past three years, IBD MarketSmith charts show. A rising RS line shows that a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.
The Accumulation/Distribution Rating is a D+, a sign of moderate selling by institutions over the past 13 weeks. Still, the chip stock boasts strong institutional backing: As of December, 5,035 funds owned NVDA shares. In fact, Nvidia shows eight quarters of rising fund ownership, the IBD Stock Checkup tool shows.
Nvidia stock owns an RS Rating of 91, meaning it has outperformed 91% of all stocks over the past year. The iShares PHLX Semiconductor ETF (SOXX) holds both Nvidia and AMD stock.
IBD Live: A New Tool For Daily Stock Market Analysis
Nvidia Earnings And Fundamental Analysis
In the fourth quarter of fiscal 2022, Nvidia earnings rose 69% while sales climbed 53%. The chip giant easily beat Q4 earnings and sales views.
In Q4, Gaming chip revenue jumped 37%. Data-center chip sales soared 71%. In addition, Nvidia guided revenue higher for the current quarter.
On a Feb. 16 earnings call, Chief Executive Jensen Huang affirmed “exceptional demand” for Nvidia chips.
After a challenging period of chip shortages across the industry, Huang expects supplies to improve “each and every quarter” going forward. That marked a notable change from Huang’s prior expectation for the chip shortage to continue throughout 2022.
For fiscal 2023, analysts expect EPS to jump 27% in all of 2022 as revenue increases 29%, according to FactSet. That would be well below the scorching pace of growth in 2021 and 2022. Both earnings and revenue are seen growing further in 2024, but at a slower pace.
Nvidia’s EPS Rating is a superior 97 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.
Out of 45 analysts covering NVDA stock, 36 rate it a buy, eight have a hold and one has a sell, according to FactSet.
The pandemic fueled demand for Nvidia chips in home computing, video games and data centers. Now chips are in such hot demand that it’s led to a global shortage.
The chip shortage hit automakers especially hard. Nvidia makes chips for car infotainment and autonomous driving systems.
As cloud gaming grows around the world, Nvidia’s new cloud gaming service could become a growth driver. Rival services include Google Stadia, Microsoft Xbox Network and Amazon Luna.
Nvidia designs dedicated chips for mining cryptocurrencies. Its cryptocurrency mining processors, or CMPs, launched in February 2021.
On Feb. 8, Nvidia ended its $40 billion Arm takeover bid because of regulatory challenges.
Looking For The Next Big Stock Market Winners? Start With These 3 Steps
Nvidia’s Omniverse: ‘Plumbing’ For Metaverses
Nvidia has made a big push into metaverse applications. Meta Platforms (FB) (formerly Facebook) and Microsoft (MSFT) see a big future in immersive virtual reality.
At Nvidia’s virtual GTC conference in November, Chief Executive Jensen Huang touted Nvidia Omniverse, a virtual world simulation and collaboration platform for 3D workflows. And the company announced Omniverse Avatar, a platform for generating interactive AI-based avatars.
On Jan. 4 at CES, Nvidia made its Omniverse software available for creators who use its graphics processors. The company also revealed a lower-priced GeForce RTX graphics processor to spur gamers to upgrade to ray-tracing technology.
According to Nvidia, the Omniverse platform provides the “plumbing” on which metaverses can be built. Lockheed Martin (LMT) is testing Nvidia’s Omniverse to simulate and manage wildfires. Other companies are using it to create “digital twins” of buildings and factories.
Nvidia’s chips and computing power are key to the emerging metaverse. Many companies will build the metaverse, analysts say, but most of the revenues will come from companies providing the infrastructure — such as NVDA.
How To Research Growth Stocks: This IBD Tool Simplifies The Search
Rival Chip Stocks
Nvidia and AMD are established leaders in the semiconductor industry.
Among top chip stocks, Nvidia helps to lead IBD’s Electronics-Semiconductor Fabless industry group. Fabless companies contract with foundries to make the chips they design. Other chip companies own their fabrication plants.
Besides NVDA, fabless chip stocks include Qualcomm, Broadcom (AVGO) and Monolithic Power Systems (MPWR). The fabless group ranks No. 112 out of 197 industry groups.
For the best returns, investors should focus on companies that are leading the market and their own industry group.
Is Nvidia Stock A Buy Now?
On a fundamental level, Nvidia earnings and sales are expected to keep growing, though at a less torrid pace than seen in recent years.
The chipmaker is expanding in growth areas, such as data centers, automated cars and cloud gaming. The adoption of metaverses and cryptocurrencies could further stoke demand for Nvidia chips.
Meanwhile, new gaming chips underscore Nvidia’s continued dominance in core markets. Management’s outlook for 2022 is bullish, yoking strong customer demand to improving chip supplies.
NVDA is a top stock in a lagging industry group. After prolonged global chip shortages, it could take months for the supply of Nvidia GPUs to catch up with demand.
After tumbling from highs, the chip giant has now fallen below both short- and long-term support levels. With a lagging RS line, Nvidia stock may take a while to become actionable again.
Bottom line: Nvidia stock is not a buy. As a leading chip stock with exposure to top end markets in data centers and gaming, NVDA is always one to watch.
Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
YOU MAY ALSO LIKE:
Is Qualcomm Stock A Buy Right Now? Here’s What Earnings, QCOM Chart Say
See The Best Stocks To Buy And Watch
Catch The Next Big Winning Stock With MarketSmith
Join IBD Live And Learn Top Chart-Reading And Trading Techniques From The Pros
World News || Latest News || U.S. News
Source link
