Artificial intelligence giants Alphabet and Nvidia have earned a spot on the IBD Breakout Stocks Index. And both Google stock and Nvidia currently trade in or near new buy zones. Yet alongside those positive indicators, the two Magnificent Seven stocks have a third thing in common that offers a note of caution for investors.
Google Stock Joins Nvidia On Breakouts Index
Many of the names on the IBD Breakout Stocks Index, which gets updated weekly, have climbed well out of buy range. Such stocks include Taser maker Axon Enterprise and leading AI stocks ServiceNow and Salesforce.com.
Covid-era darling Zoom Video Communications fits that bill. Featured in this column last week, Zoom stock has launched a budding rebound after a long and steep post-pandemic slide.
But while others are extended, Google stock has laid the groundwork for a fresh breakout. The search and cloud computing giant has crafted a cup-with-handle pattern with a 182.02 buy point. Google teased that entry on Tuesday and closed 2% below it on Wednesday. The setup comes as shares recover from a sharp drop below the 50-day moving average in July.
As Google prepares a potential pop, Nvidia continues to float around the very the top of its buy range. The IBD 50 and IBD Leaderboard member initially cleared a 140.76 entry last month.
See Who Joins Google, Nvidia On The IBD Breakout Stocks Index
Cautionary Tale — With A Positive Twist
On the positive side, the appearance of Google stock and Nvidia on the IBD Breakout Stocks Index shows strength. And that's confirmed by how both tech titans are in or near a buy zone.
But investors should also note that the bases for Nvidia and Google are third- and fourth-stage. By definition, a stock has already made a substantial move by the time a later-stage pattern forms. In such a strong bull market, both stock could, of course, keep climbing.
So when analyzing Google stock, Nvidia and others in a similar situation, investors should have rules for how to buy stocks and when to sell stocks at the ready.
That said, although Google's base is third-stage, the stock has already weathered the sharp drop in July and August. That helps mitigate the frothy, overbought feeling often seen in later-stage patterns.
In fact, Google nearly reset its base count in September. The count is reset when a stock undercuts the low in the prior base. Google stock fell below the 153.78 buy point on April 1, but did not undercut the 130.66 low in the base. It now stands poised to pop into buy range.
Nvidia serves up a note of caution of its own. While Alphabet has already reported earnings, Nvidia is on tap to unveil its quarterly performance on Nov. 20. And note that as Nvidia notches a record high, last month's breakout was from a riskier fourth-stage base.
As both Alphabet and Nvidia show strength while the Nasdaq soars past 19,000, investors should continue to monitor promising opportunities in this bull market with sound risk management.
IBD Breakout Opportunities ETF
The IBD Breakout Opportunities ETF from Innovator Capital Management tracks the IBD Breakout Stocks Index. As with other index ETFs, this fund allows you to invest in the entire index in addition to, or rather than, buying individual stocks. Learn more here about the ETF and Innovator.
Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
