Is It Finally Time for NVIDIA (NVDA) to Fall?
On Friday, the markets finally cooled off and posted a losing week. It’s been a rarity over the past few months with the Bulls fully in control. But with the overall weakness in some tech names and the semiconductor sector taking a step back, could it be time for NVIDIA ($877.35|6.18%) to finally fall? Bears would cheer for it and it would certainly cause some type of market correction, but I’m not convinced a full-blown crash is going to happen.
One argument you will hear from bears is that NVIDIA is a bubble stock. AI and chips are a bubble that will pop just like the dotcom bubble did in 2000. First of all, it’s difficult to take this argument seriously. NVIDIA is a legitimate company with exponentially growing revenue and sales. It has a very strong gross margin of nearly 80% on its products and currently, demand is far outpacing the supply of its GPUs.
When you look at the stock the returns have been staggering. Just nine weeks into 2024 and NVIDIA has already gained more than 80%. Zoom out and that number has grown to about 275% over the past 52 weeks. NVIDIA now has a market capitalization of $2.19 trillion, smaller than just Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT). But in terms of its multiple, NVIDIA trades at a smaller forward PE ratio than the likes of Tesla ($168.29|-1.11%) or Amazon (NASDAQ: AMZN). Translation: the stock is still cheap on a relative basis compared to how fast the company is projected to grow.
NVDA Stock Outlook
So what if NVIDIA falls? Well, given the recent bullish option flow and long-term institutional interest, there will be plenty of buyers of that dip. I don’t blame them at all and will likely be looking to add some shares as well.
Let’s look at some of the bullish catalysts for NVIDIA. First, in a couple of weeks, NVIDIA is holding its largest annual event the GTC 2024 AI event for developers. This is taking place in the heart of Silicon Valley and we’ll likely get some sort of update on the company’s AI chips. While the event may not reveal anything new, these are usually bullish catalysts that can have a positive impact on the stock.
Then there is the elephant in the room: the stock split. Nothing has been announced yet but many analysts are expecting one as the stock approaches $1,000 per share. Yes, I understand that stock splits are mostly meaningless. But there is a psychological part of a split that helps retail investors. You can either buy the stock early and get the split shares or you can wait to buy until shares are more affordable. Given NVIDIA’s performance and projected growth, don’t be surprised if retail investors gobble up those cheaper shares after the stock has split.
If this is the beginning of a pullback for NVIDIA, I welcome it. It has some gaps to fill below and should find support locally around the 8-day SMA at $837.99 or it could even re-test the 20-day SMA down at $774. Once it hits those and builds a new level of support look out because it can come flying back up. If you’re a true NVIDIA bull, you’ll gladly welcome this reset.
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