Nvidia is a giant in data centers and gaming, with AI chips a growth opportunity. Is Nvidia stock a buy now after its successful breakout?
Semiconductor News
On March 21, chipmaker Nvidia announced various initiatives to broaden its reach in artificial intelligence (AI), including partnerships and new products.
"We are at the iPhone moment of AI," Chief Executive Jensen Huang said in a keynote presentation.
On Feb. 22, Nvidia delivered a beat-and-raise report driven by its data center segment, which includes AI chips.
In the tech industry's fierce battle for AI dominance, the advanced chips needed for "generative AI" such as the ChatGPT chatbot are key.
For those looking for top large-cap stocks to buy now, here's a deep dive into NVDA stock.
Nvidia Stock Technical Analysis
Nvidia stock gapped up 14% on earnings Feb. 23 to top a 230.59 buy point from a three-weeks-tight pattern. It also joined the prestigious IBD Leaderboard. It's now extended, meaning shares are trading beyond the 5% chase zone, which goes to 242.12. In fact, NVDA is nearing the 20% profit-taking goal.
NVDA stock crashed in 2022 but is up more than 81% year to date.
It earns a near-perfect IBD Composite Rating of 98. In other words, Nvidia stock has outperformed 98% of all other stocks in IBD's database in terms of combined 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 relative strength line for NVDA stock continues to rise, after a plunge in 2022.
The RS line indicator rallied strongly from mid-2019 to late 2021, IBD MarketSmith charts show. A rising RS line means that a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.
The IBD Stock Checkup tool shows that Nvidia stock carries a Relative Strength Rating of 98, meaning it has outperformed 98% of all stocks in IBD's database over the past year.
The iShares PHLX Semiconductor ETF holds both Nvidia and AMD stock.
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Nvidia Earnings
Nvidia's EPS Rating is 62 out of 99 and its SMR Rating is a B, 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 Feb. 22, Nvidia beat Wall Street's earnings target for its fiscal fourth quarter and guided higher for the current period.
The Santa Clara, Calif.-based company earned 88 cents a share on sales of $6.05 billion. Year over year, Nvidia earnings dropped 33% while sales sank 21%.
Data center revenue rose 11% to $3.62 billion, fueled by demand for AI chips. However, gaming chip sales remained weak, falling 46% to $1.83 billion.
For the full year, Nvidia earnings fell 25% per share on basically flat revenue.
Analysts expect Nvidia earnings to rebound 34.3% in fiscal 2024, on a 10.8% sales increase.
Out of 47 analysts covering NVDA stock, 32 rate it a buy. Fourteen have a hold and 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.
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. 2 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?
On a fundamental level, Nvidia earnings and sales are expected to rebound this year.
The chipmaker is expanding in growth areas, such as data centers, including artificial intelligence or AI; automated electric cars, and cloud gaming. The adoption of metaverses and cryptocurrencies could further stoke demand for Nvidia chips.
However, macroeconomic uncertainties and risk of global recession linger.
NVDA stock has staged a strong comeback. But shares are not in a proper buy range.
Even if it were in a buy range, the market's "In Correction" status indicates an unpredictable market with clear factors weighing against it. It strongly discourages investors from making new purchases until a confirmed uptrend gets underway.
Bottom line: Nvidia stock is not a buy. As a leading chipmaker with exposure to top end markets, Nvidia 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.
