NVIDIA Corporation Powering Future Technologies
The current global computer chip shortage has been negatively impacting many industries. While the situation has been showing signs of improvement, many countries are looking at increasing their own chip production in order to reduce their dependence on foundries in Asia.
Stateside, Joe Biden’s administration has earmarked tens of billions of dollars for research and for building semiconductor foundries. This will provide bullish tailwinds for innovation and manufacturing.
Currently at the top of the semiconductor space is NVIDIA Corporation (NASDAQ:NVDA). The company was valued at nearly $900.0 billion in November 2021 and is on its way to becoming the first trillion-dollar semiconductor company.
The technology stock market began to show cracks after its stellar run-up in 2021 that was driven more by sentiment and lofty expectations than by fundamentals. Generally, this kind of mismatch between valuation and fundamentals doesn’t end up well.
Since then, NVDA stock has been battered. Shares of NVIDIA Corporation have plummeted from $346.47 in November 2021 to $246.85 as of this writing. That represents a retrenchment of nearly 30%.
NVDA Stock Could Move Lower in the Short Term
Is now the time for investors to consider NVIDIA stock?
A day doesn’t go by when you don’t see NVIDIA Corporation talked about in the financial media. Some say NVDA stock has declined to levels that are attractive. I simply don’t agree.
I believe there’s still downside risk of NVIDIA stock to below $200.00, with major support around $145.00.
Chart courtesy of StockCharts.com
The possible emergence of a death cross pattern on the NVDA stock chart appears to be in play if the 50-day moving average ($244.47) breaks below the 200-day moving average ($236.91).
This makes the situation with NVIDIA Corporation tricky, especially given the current dislike for high-value technology stocks.
I doubt NVIDIA stock will drop below $200.00 without attracting massive buying support. Anywhere below $200.00 could be a decent entry point.
NVIDIA Corporation is trading at a hefty 23 times its trailing revenues and 15 times its consensus revenue estimate of $40.7 billion for fiscal 2024. This is still quite a stretch. (Source: “NVIDIA Corporation (NVDA),” Yahoo! Finance, last accessed March 18, 2022.)
The reality is that NVDA stock trades at a premium multiple. This is deserving, but that doesn’t mean the stock is safe at its current level.
As shown in the past few years, the buying behind NVIDIA stock is all about market sentiment and momentum. Currently, investor sentiment toward technology stocks is neutral to bearish. This will cap any upside moves by shares of NVIDIA Corporation in the immediate term.
NVDA stock seems to be for traders at this time, given the stock’s potential for big swings that can surface even after the recent selling.
Buy-and-hold investors might want to avoid NVIDIA Corporation for now. If they must get in, entering via small tranches to assess support and limit the risk makes sense.
Another alternative would be to trade call options in NVIDIA stock to limit the risk or write put options to establish a lower entry point while generating income.