Nvidia, a giant in data centers and gaming, is supercharging investor interest in artificial intelligence. Is Nvidia stock a buy?
Semiconductor, AI News
On Dec. 6, AMD released a new AI chip, offering new competition to Nvidia in the huge, fast-growing market.
In November, Nvidia delivered another quarterly earnings beat-and-raise report. It also unveiled the H200, its latest graphics processing unit for training AI models.
The AI chip leader has suffered recently from reports that the U.S. will move to crack down on redesigned Nvidia AI (artificial intelligence) chips, which were intended to get around export controls.
Companies like Nvidia, AMD 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
The AI chip leader broke out past a 476.09 buy point from a double-bottom base in early November, reaching a record 505.48 on Nov. 20. However, the advance from the Oct. 31 low came on light volume, the IBD MarketSmith chart shows.
The stock stumbled after Nvidia's Nov. 21 earnings report, falling back below the buy point and 21-day line. But it has found recent support at the 50-day line.
If NVDA stock gets back above the entry, the buy zone would go to 499.89, according to IBD Leaderboard.
Nvidia stock tested the still-valid 476.09 buy point on Dec. 8, but closed below it.
The relative strength line for Nvidia stock is starting to show some lag after rallying for most of 2023. A rising RS line, the blue line in IBD charts, shows that a stock is outperforming the S&P 500.
After a painful 2022, NVDA stock has soared more than 223% year to date. It mostly held up better than growth stocks at large during recent market sell-offs.
Nvidia joined IBD Leaderboard after gapping up on earnings in February.
NVDA earns an IBD Composite Rating of 98 out of 99. In other words, Nvidia stock is in the top 2% 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 97. That means it has outperformed 97% of all other stocks over the past year.
The iShares PHLX Semiconductor ETF holds both Nvidia stock and AMD stock.
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Nvidia Earnings
Nvidia's EPS Rating is a perfect 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.
On Nov. 21, Nvidia disclosed earnings rocketed 593% in the third quarter and revenue soared 206%, an overall beat.
Nvidia earnings accelerated from a 429% gain the prior quarter. Sales growth also sped up sharply from the previous quarter. The chip giant guided Q4 sales of $20 billion, up 231%.
In Q3, data-center revenue surged 279%. The business includes the A100 and H100 AI chips.
For the full year, analysts now expect Nvidia earnings to rebound 264% as sales jump 118%. Last year, Nvidia earnings fell 25% per share.
Out of 54 analysts covering NVDA stock, 51 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, Broadcom and Monolithic Power Systems.
Currently, the fabless group ranks No. 92 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. Nvidia came under pressure after its latest earnings report. Shares are now rebounding from a key level, with the AI chip stock flirting with the buy point again.
Bottom line: Nvidia stock is not a buy right now, but it could be soon. As a chip company with exposure to top growth markets, NVDA is always one to watch.
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