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Are Recent Buyers of NVIDIA Corporation (NASDAQ:NVDA) in a Comfortable Position?

NVIDIA Corporation (NASDAQ:NVDA), as we have documented, was ripe for a bounce following some extension lower of its kneejerk earnings report reaction action. We said we liked it after about 2-3 days of follow-through downside in the wake of its Q3 results and guidance.

It turns out that the stock saw 3 days of follow-through downside, and then put in a key pivot low under $135. We believe, at this point, that this will likely represent a stable low price for the stock for some time. It represents a 53% decline in under two months, and contains an enormous increase in average trading volume during the final 3 weeks of the move. That suggests to us that the weak-handed speculative money has already been completely expunged from the stock, which is the most important part of any sharp corrective process.

NVIDIA Corporation (NASDAQ:NVDA) has also started to pick up some interesting analyst support in recent days.

It was initiated with a Outperform at Credit Suisse and tagged with a price target of $225 on Monday. That same day, we heard from boutique firm Tigress Financial that it believes the excess Pascal GPU inventory will be worked down over the next few months and that NVDA’s strong growth prospects will overcome near-term softness.

As noted by Tigress, the firm has generally viewed the cryptocurrency GPU demand as “a bonus” and always felt that it would fade at some point. Accordingly, Tigress believes “significant upside opportunity exists” and recommends aggressive purchasing of shares at current levels.

That’s one of the more bold ideas out there right now on the sell side. But it does bring up an interesting dynamic: if the crypto facet for NVDA shares was a bonus, perhaps it can be a bonus again.

We’re talking about the Bitcoin crash that we saw last week. It has been our take that the crypto bear market had to go through one more really violent purging dive. Well, now it has. And BTC was up sharply on Wednesday.

It might be an extra turbo boost for the NVDA bounce if BTC started to form a V-bottom on the chart from here. And it’s certainly something to keep an eye on.

But, even without this dynamic, we believe the major process of correction in the stock has now been accomplished and it’s certainly worth a fresh look here.

 

What is this All About?

While many analysts think of NVDA as a simple chip play, we are part of the group that sees it as a DC/AI-driven secular growth story.

That has major ramifications for where you think the proper valuation sits – if it’s just a chip play, then the stock is still priced about 2x where it should be to fall into line with most chip stocks in terms of the type of valuation metrics that commonly define the space.

As we discussed in our last piece, “the problem here for the stock is about a longer-than-anticipated quagmire for the gaming/mining-related inventory correction, which now looks to pollute 2 more quarters. But the secular themes haven’t changed at all. That problem is not something that interferes with the larger thesis in any way. Which is why we could see the $120-140 area compelling. At this point, that bounce may already be underway, or traders may get another shot at it. If we see the Nasdaq move to test the February lows (which looks increasingly likely), that could create just such an opportunity, but not one for the faint of heart.”

So far, that has turned out to be dead on the mark.

NVIDIA Corporation (NASDAQ:NVDA) managed to rope in revenues totaling $3.2B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top-line growth of 20.7%, as compared to year-ago data in comparable terms.

In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($7.6B against $1.6B).

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