Nvidia (NVDA) chips power a future of self-driving cars and cloud gaming. NVDA stock broke out after topping quarterly views and guiding higher, but supply constraints remain. Is Nvidia stock a good buy now?
For those looking for top large-cap stocks to buy now, here’s a deep dive into NVDA stock.
NVDA Stock Basics
The fabless chipmaker pioneered graphics processing units, or GPUs, to make video games more realistic. It’s expanding in AI chips, used in supercomputers, data centers, drug development and driverless cars.
For example, it will supply the chip that acts as the “brain” for the Nio (NIO) ET7, which will be Nio’s first autonomous driving model when it arrives in Q1 2022. And Nvidia already supplies Amazon (AMZN) Web Services with chips for data centers.
Nvidia’s GPUs act as accelerators for central processing unit, or CPUs, made by other companies. In April, Nvidia unveiled its first CPU, called Grace, which uses chip designs from U.K.-based Arm for high-end computing. With its own CPU, Nvidia will offer a more complete system for data centers, directly challenging processor giants Intel (INTC) and Advanced Micro Devices (AMD).
Nvidia is having a tough time closing out its $40 billion Arm takeover, which could slow its efforts to expand. Arm’s technology is central to smartphone chips and gaining more traction in enterprise servers.
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Nvidia Earnings And Fundamental Analysis
In Q2, Nvidia earnings jumped 89% while sales surged 68%. Gaming chip revenue soared 85%. Data-center chip sales jumped 35%. Nvidia purchased Mellanox last year. In addition, Nvidia guided revenue higher for the current quarter.
On an Aug. 18 earnings call, Nvidia CEO Jensen Huang said he expects chip supplies to remain constrained for the “vast majority” of 2022. Still, analysts expect EPS to jump 35% in all of fiscal 2022 as revenue increases 55%, according to FactSet.
Nvidia’s EPS Rating is a superior 97 and its SMR Rating is an A, on a scale of A+ to a worst E. The EPS rating compares a company’s earnings growth to other stocks, and its SMR Rating gauges sales growth, profit margins and return on equity.
Out of 42 analysts covering NVDA stock, 34 rate it a buy, six have a hold and two have a sell, according to FactSet.
The pandemic fueled demand for Nvidia chips in home computing, video games and data centers. Now chips are in such hot demand that it’s led to a global shortage.
The chip shortage hit automakers especially hard. Nvidia makes chips for car infotainment and autonomous driving systems.
As cloud gaming grows around the world, Nvidia’s new cloud gaming service could become a growth driver. Rival services include Google Stadia, Microsoft Xbox Network and Amazon Luna.
This year, Nvidia began making dedicated chips for mining cryptocurrencies. Its cryptocurrency mining processors, or CMPs, launched in February and generated $266 million in Q2 sales.
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Nvidia Stock Technical Analysis
Nvidia earns an unbeatable IBD Composite Rating of 99. In other words, it has outperformed 99% of all other stocks in terms of combined technical and fundamental metrics. In fact, NVDA belongs to the IBD Leaderboard, a list of stocks with the most potential for big gains.
Investors generally should focus on stocks with CRs of 90 or even 95.
Nvidia stock topped a 207.43 buy point from a short cup-with-handle base Aug. 20, according to MarketSmith chart analysis. It’s now extended, meaning shares are not in buy range, which goes to 217.80. An earlier, May breakout saw NVDA stock quickly hit a 25% profit-taking goal.
The relative strength line for NVDA stock recently made new highs. A rising RS line means that a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.
The Accumulation/Distribution Rating is an A-, a sign of heavy buying by institutions over the past 13 weeks. The chip stock boasts strong institutional backing: As of June, 4,590 funds owned NVDA shares. In fact, Nvidia shows eight quarters of rising fund ownership, the IBD Stock Checkup tool shows.
Nvidia stock owns an RS Rating of 94, meaning it has outperformed 94% of all stocks over the past year. The iShares PHLX Semiconductor ETF (SOXX) holds both Nvidia and AMD stock.
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Rival Chip Stocks
Nvidia and AMD are established leaders in the semiconductor industry.
Among top chip stocks, Nvidia helps to lead IBD’s Electronics-Semiconductor Fabless industry group. Fabless companies contract with foundries to make the chips they design. Other chip companies own their fabrication plants.
Besides NVDA, fabless chip stocks include Qualcomm, Broadcom (AVGO) and Monolithic Power Systems (MPWR). The fabless group ranks a superior No. 4 out of 197 industry groups, and Nvidia is a highly rated chip stock within it.
For the best returns, investors should focus on companies that are leading the market and their own industry group.
Is Nvidia Stock A Buy Now?
On a fundamental level, Nvidia earnings and sales are rising again after sharp declines. Recent acquisitions expand its opportunity in emerging growth areas, such as data centers, automated cars and cloud gaming. The adoption of cryptocurrencies could further stoke demand for Nvidia chips.
Meanwhile, new gaming chips underscore Nvidia’s continued dominance in core markets.
Nvidia is a top stock in a leading industry group. But as the global chip shortage lingers, it could take months for the supply of Nvidia GPUs to catch up with demand.
Nvidia stock cleared a 207.43 buy point in August, but quickly moved above proper buying range. Its RS line is near fresh highs, a bullish sign after the latest breakout.
Bottom line: Nvidia stock is not a buy right now. As a leading chip stock with exposure to top end markets in data centers and gaming, Nvidia is always one to watch.
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