Nvidia is stabilizing after a bounce from its three-session sell-off. Shares of the artificial intelligence leader had climbed since its latest earnings report came out, but the stock has shown signs of topping. Is Nvidia stock a buy now?
The leading AI stock reversed higher Monday, finding support at the 21-day exponential moving average. The stock has been trading tightly for several days, settling down after its June 20-24 tumble.
Reuters reported Monday that French regulators are looking to charge Nvidia with anti-competitive actions. The issue is centered around Nvidia's chip programming CUDA software, which is the only one 100% compatible for its graphics processing units.
Nvidia stock was weighed down Thursday after Micron tumbled on an underwhelming current-quarter revenue guidance. Micron is one of only a few companies that make a specialty memory chip used in AI accelerators that speed up machine learning and AI applications. And Nvidia uses these chips in its AI subsystems.
Despite Nvidia's recent weakness, analysts aren't giving up on the AI stock just yet. On Wednesday, Citigroup hiked its price target to 150 from 126 and maintained its buy rating, citing Nvidia's next-generation AI chip plans. Also Wednesday, Cantor Fitzgerald lifted its price target to 175 from 140 and held its overweight rating.
Nvidia is arguably the leader of the AI investment theme. After establishing itself as a premier designer of chips for high-performance computer graphics, the company's technology became a go-to source of chips for the massive computing needs of artificial intelligence applications.
Its AI technology is used by industries ranging from graphics to automotive, industrials and health care.
But now Nvidia just went through its worst three-day rout since December 2022. It lost $430 billion in market cap over the three day sell-off, the most ever in its history, and closed Monday with a market cap below $3 billion, according to Dow Jones Market Data. Tuesday's powerful move lifted the stock back above the $3 trillion market cap level.
Nvidia Tries To Recover After Short-Lived Drop
The IBD 50 and Big Cap 20 stock lost around 16% in the three day sell-off. Nvidia stock found support at its 21-day exponential moving average Tuesday. The stock is currently above its 50-day moving average.
It is still the No. 1 stock out of 39 in IBD's fabless semiconductor industry group, which holds the No. 3 spot out of the 197 IBD groups. It still boasts 99 IBD Composite and Earnings Per Share Ratings.
Nvidia broke out of a second-stage cup-with-handle base with a 92.22 buy point on May 15. On May 23, the stock jumped to new highs after the company crushed fiscal first-quarter estimates. The AI stock shot up and by late May had reached a 20% gain from the lower entry. This justified taking at least some profits, but Nvidia kept charging higher.
One of the first signs that Nvidia was topping came June 6 to 18. Volume started drying up during that period as the stock climbed to new levels. That's a sign that buying was starting to dry up.
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Nvidia stock reached an all-time high the morning of June 20, before profit-takers took over and the stock reversed sharply lower. Shares closed 3.5% lower, then lost another 3.2% the following day. The sell-off came in higher-than-average volume.
Still, Nvidia stock has a big cushion from the 92.22 and 97.40 buy points.
Profit Estimates Robust But Fading
The AI company has shown triple-digit profit and sales growth over the last four quarters. Nvidia blew past fiscal first-quarter profit and sales estimates on May 22. Its quarterly adjusted earnings-per-share grew 461% over the prior year's period. Revenue grew 262% to $26 billion. It reported record quarterly data center revenue of $22.6 billion, an increase of 427% year over year.
"AI will bring significant productivity gains to nearly every industry and help companies be more cost- and energy-efficient, while expanding revenue opportunities," said Jensen Huang, founder and CEO of Nvidia, in the earnings release.
Nvidia had a 10-for-1 stock split, effective June 7. Shares had topped the psychological 1,000 level prior to the split.
Nvidia's profit growth can't keep up the torrid pace forever. The consensus estimate for the current quarter is for 121% growth, then dropping off to 62% and 39% the following two quarters, according to MarketSurge.
Earnings for the fiscal year that ended in January grew 294%. FactSet estimates call for fiscal 2025 EPS of $2.70, for a 108% year over year increase. For the next fiscal year, estimates show earnings growth tempering to 34% to $3.62 per share.
Is Nvidia A Buy?
The stock is more or less steady as it tries to recover from the three-day tumble. Shares remain extended from its latest buy points and are not in a buyable pattern, according to IBD MarketSurge.
In 2023, the AI stock had a huge 239% run and it's up around 150% so far this year, even after the recent drop.
It's best now to wait for selling to subside and another base to form or follow-on buy point to present itself to buy the AI chip stock. Therefore, it is not a buy right now.
Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.
