Nvidia joined the tech-led market sell-off Wednesday. The stock sliced through a closely watched moving average. Is Nvidia stock a buy now?
Nvidia stock closed down a lofty 6.8% Wednesday, in a day of widespread selling that added to weakening picture for techs.
Last Wednesday, chip stocks, including Nvidia chipmaker Taiwan Semiconductor, sank on fears of heightened U.S. trade tensions with China. In addition, former President Donald Trump suggested that Taiwan should pay the U.S. for protection in a Bloomberg interview.
Nvidia stock closed 2% below the 50-day average Wednesday, although volume has been lower than average. If the stock continues to drop and volume increases, that could trigger a sell signal.
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The leading AI stock calmed down after its June 20-24 tumble, its worst three-day rout since December 2022. It lost $430 billion in market cap over the three-day sell-off, the most in its history. The IBD 50 and Big Cap 20 stock lost around 16% over those three days.
Nvidia is still the No. 1 stock out of 39 in IBD's fabless semiconductor industry group, which dropped to the No. 4 spot out of the 197 IBD groups. Nvidia lost its trifecta of perfect 99 IBD ratings as its Relative Strength Rating dipped to 98. But it still boasts perfect 99 IBD Composite and Earnings Per Share Ratings.
Shares 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. Nvidia 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 stock was topping came June 6 to 18. Volume started drying up during that period as the stock climbed to new levels.
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Still, the stock has a big cushion from the 92.22 and 97.40 buy points.
Profit Estimates Robust But Fading
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.
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.
Nvidia had a 10-for-1 stock split, effective June 7. Shares had topped the psychological 1,000 level prior to the split, or 100 after the split.
The consensus estimate for the current quarter is for 137% growth, then dropping off to 75% and 50% the following two quarters, according to MarketSurge.
Earnings for the fiscal year ended in January grew 294%. FactSet estimates call for fiscal 2025 earnings per share of $2.71 for a 108% year over year increase. For the next fiscal year, estimates show EPS growth tempering to 37% to $3.67.
Is Nvidia Stock A Buy?
Despite recent drops, shares remain extended from their 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 133% so far this year, even after the recent drops.
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. Nvidia stock fell below its 10-week moving average, which is a warning sign.
Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.
