Hotly-anticipated
Nvidia
earnings due late Wednesday are dominating investor attention—and for good reason. With expectations sky-high, one analyst says the stock has exhibited a bearish vulnerability that has implications for the wider market.
Nvidia (ticker: NVDA) will report results after the bell, and Wall Street’s bullishness on the shares has reached a fever pitch in recent days. Analysts widely expect another blowout quarter and strong outlook from the chip maker, whose stock-price rally of more than 210% so far this year has added buoyancy to the
S&P 500
and
Nasdaq.
The fundamentals look good for Nvidia, whose chips are seen as key to growth in the artificial intelligence industry. The investor frenzy over AI has been one of the dominant market trends of 2023, buoying Nvidia, and there are indications that the bubble surrounding the high-growth tech can grow bigger still.
Nvidia’s last results, released in May, were outstanding, proving that AI was much bigger than many investors thought, ushering in a near one-third gain in the stock price in the subsequent days and sending positive ripples across the market.
“Therefore, the ex-post share price performance of Nvidia when it announces its fiscal Q2 earnings … is likely again to play a key determinant in the performance of the leading Nasdaq 100 in the remaining months of 2023 which will likely have a spillover effect throughout the global equities space as well,” analyst Kelvin Wong of broker Oanda wrote in a Wednesday note.
The main concern for investors is that expectations may be too high. Nvidia needs to beat—probably significantly beat—expectations to keep momentum behind the stock, which trades at a valuation of 237 times last year’s earnings. The bullish view is that the growth outlook over AI could be so good as to warrant a fundamental review of the valuation based on forward earnings projections.
Nevertheless, “Nvidia now faces a higher bar of overcoming such highly optimistic expectations than before during the prior May 2023 earnings release,” Wong noted. “Any minuscule disappointment in Q2 earnings numbers and or outlook trend is likely to trigger a significant negative feedback loop in the share price of Nvidia that may jeopardize the current bullish trend of the Nasdaq 100.”
Another thing for investors to worry about: the outlook for the stock based on technical analysis, which relies on trends in market data and prices as opposed to external fundamentals. And it doesn’t look great.
“In the lens of technical analysis, the current price actions of Nvidia have flashed out bullish exhaustion conditions which indicate an increased risk of a multiweek bearish reversal,” Wong said.
In particular, Wong highlights how on Tuesday the stock surged in a record intraday high of $481.87 but failed to maintain that bullish momentum. The shares ultimately closed below the key resistance level of $474.10, forming a bearish trend with the highest volumes in more than a month, Wong said. The important medium-term support level to watch is $405.95, Wong added, with Nvidia stock on track to open around $460 based on U.S. premarket trading.
While animal spirits may be more likely to govern moves in Nvidia stock after earnings, it’s still worth considering the technical picture.
Write to Jack Denton at [email protected]
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