NVIDIA Corporation (NASDAQ:NVDA) shares have been demonstrating some clear relative strength following the pivot lows put into place in late November around the $135 level.
We had suggested the stock might be interesting for a bounce following “2-3 days of follow-through downside in the wake of its Q3 results and guidance.” NVDA followed through down to the $135 pivot and then leaped higher to test $175 over the next two weeks. Now, as we pull back into the zone of potential “higher-low” support, we thought it would be a good idea to follow up.
NVIDIA Corporation (NASDAQ:NVDA) shares were hurt by news and rumors related to the likely divestiture of a large ownership position in the hands of Softbank (SFTBY). That announcement hit on Tuesday and helped to drive shares back under the key $150 level.
Our sense is that this is an important line in the sand at this point. We have a stock that became severely oversold out of its Q3 earnings and forward guidance, and then wrung out speculative interest over a further few days of intense selling, which included a washout of the $150 level stops and hedge orders.
Since that low, NVDA shares have actually outperformed the broader markets and most large-cap tech names, which is an important signal that this most recent dip under the $150 level may represent another opportunity.
In addition, the stock closed out the action on Tuesday at a perfect Fibonacci 61.8% retracement of its bounce in late November, representing a common institutional accumulation point.
We still see this as a likely outperformer given the degree of slack that was taken out of the picture with the stock’s $165 points of corrective action in just 6 weeks. The valuation standard appears to clearly be linked to more than the chip cycle, with AI increasingly dominating the narrative. To hold onto that premium, we would assume a mark-up in shares if the Nasdaq 100 index is able to stabilize at its current levels.
The company’s recent announcement on its neural network interactive graphics breakthrough is a perfect example of why it’s absurd to see this as a “chip stock” on par with the majority of components in the $SOX.
“NVIDIA has been inventing new ways to generate interactive graphics for 25 years, and this is the first time we can do so with a neural network,” said Bryan Catanzaro, vice president of Applied Deep Learning Research at NVIDIA, who led the team developing this work. “Neural networks — specifically generative models — will change how graphics are created. This will enable developers to create new scenes at a fraction of the traditional cost.”
Top Down View
NVIDIA Corporation (NASDAQ:NVDA) operates as a visual computing company worldwide. It operates through two segments, GPU and Tegra Processor.
The market tends, rightly or wrongly, to see the company as in a competitive battle for market share in the GPU space with AMD, though each has been seeing seemingly unrestrained top-line growth over recent years.
The company’s GPU segment offers processors, which include GeForce for PC gaming and mainstream PCs; GeForce NOW for cloud-based game-streaming service; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for AI utilizing deep learning, accelerated computing, and general purpose computing; GRID provides power of NVIDIA graphics through the cloud and datacenters; DGX for AI scientists, researchers, and developers; and cryptocurrency-specific graphics processing units.
The Tegra Processor segment provides processors designed to enable branded platforms – DRIVE and SHIELD; DRIVE automotive computers and software stacks, which offer self-driving capabilities; SHIELD devices and services designed for mobile-cloud in home entertainment, AI, and gaming applications; and Jetson TX 2, an AI computing platform for embedded use.
The company’s products are used in gaming, professional visualization, datacenter, and automotive markets. NVIDIA Corporation sells its products to original equipment manufacturers, original device manufacturers, system builders, add-in board manufacturers, retailers/distributors, Internet and cloud service providers, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups, and other ecosystem participants.
Over the past week, shares of the stock have suffered from clear selling pressure, dropping by roughly -6% even with the push higher on the news.
NVIDIA Corporation (NASDAQ:NVDA) pulled in sales of $3.2B in its last reported quarterly financials, representing top line growth of 20.7%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($7.6B against $1.6B).