Assessing Nvidia’s Performance, AI Potential, and Earnings Risk
Nvidia Corp (symbol ‘NVDA’) is the best performing major share of 2023 so far, up almost 190% since last October’s lows. At around $310 it remains approximately 10% below November 2021’s all-time high.
Traders and investors generally believe that Nvidia is among the companies with the most to gain from the recent boom in AI. Nvidia’s existing GPUs are widely used for AI in addition to more ‘conventional’ applications such as gaming, VR and crypto mining. Development of AI-specific GPUs might yield significantly higher profit margins for the company within the next few years, while Nvidia’s market share for GPUs generally is expected to increase further in the next year.
Nvidia’s earnings report for the fiscal quarter ending in April is expected on Wednesday 24 May, after hours. The consensus for EPS is 61c, with the 12 estimates in a relatively narrow range between 59c and 66c.
‘For medium to long-term traders, the primary concern with the current bullishness on many tech shares is the ratio of price to earnings,’ said Michael Stark, an analyst at Exness. ‘Currently Nvidia’s actual PE for 2023 is around 127, which is a bit more than five times the average for the S&P 500. Nvidia is one of the large tech companies which started to pay dividends relatively recently in 2012, but the actual dividend has been a meagre 4c per share since the fourth quarter of 2021.
‘Within the current environment of focus on value and reasonable PE, buying NVDA now might be questionable,’ Stark continued, ‘But with positive sentiment seemingly unshakeable it’s a huge risk as well to sell this CFD around earnings. The recent AI mania means it might not really matter what the results are as long as investors remain convinced of future growth.’
Technical Analysis for Nvidia
Momentum to the upside has increased in recent weeks as the earnings call approaches, but from a technical standpoint it would traditionally be very risky to buy in here. The slow stochastic at around 90 combined with the price outside the upper deviation of 50-day Bollinger Bands give a very strong signal of buying saturation while the recent uptick by ATR isn’t especially notable yet.
19 May’s hammer-like candle probably doesn’t indicate a rejection in itself, but it might be difficult for the price to push above the all-time high of around $334 (marked by the 0% Fibonacci retracement) unless buying volume is especially fervent. A confident buyer aware of the risk could reduce it somewhat by using buy limits from the area of the 50 SMA and 23.6% weekly Fibonacci retracement, but obviously that would depend on the gap if any at Thursday’s open.
The opinions in this article are personal to the writer. They do not reflect those of Exness or FX Empire.
This article was originally posted on FX Empire