NVIDIA (NVDA) has a problem.
Nvidia's problem isn't with demand, they’ve got plenty of demand for their chips and AI architecture to last years.
Nvidia's problem isn't with revenue, because that demand is driving huge record setting revenue.
Nvidia's problem is you, the investor.
For the last two years, we've driven Invidia stocks to unparalleled valuations as the company has become the face of the AI movement.
Sure, there are competitors, but are they really competing? As soon as AMD (AMD) or another chip company pulls into the rearview mirror of NVIDIA Jensen Huang simply feathers the accelerator a bit closer to the floor and leaves them in the dust.
With all of that power, NVIDIA can’t solve the one issue it has as the company gets ready to announce their earnings this Thursday after the close.
The problem is that investors and Wall Street analysts have priced the stock to perfection.
Think of it like the judges in the Olympics giving Symone Biles a perfect score of “10” before she even begins the floor exercise.
The judges would likely be even more critical of every step, bounce and flip, looking for a reason that the performance didn’t earn their score.
That’s the problem with NVIDIA. They’ve got the “10” ahead of the report
The stock is literally “priced for perfection".
And that’s a problem that’s going to present an opportunity to those of us willing to be a little patient.
If you missed it last week, NVIDIA put on a few performances like we’re seeing today.
The stock traded lower as soon as it ran into overhead resistance at $130.
That $130 price has been the thorn in the side of NVIDIA bulls for the last week as shares have literally touched $130 each of the last six days, only to reverse lower.
That’s your first price to write down, $130. I’ll give you the label for it in a minute.
Next Number to Write Down: $120
$120 will be one of the “pivot” prices for NVIDIA in the coming days.
The stock has seen this price turn into both support and resistance for the shares over the last three months.
The repetitiveness of $120’s role as a critical price strengthens the market’s reaction to a break above or below this one single price.
Between now and Thursday, I don’t expect that we will see NVIDIA shares trade as low as $120, if it does, it would mean that we will see a rally from $120 to $130 and above before Thursday afternoon as investors bid the stock higher ahead of that report.
Why Would Investors Buy Now?
Over the last three weeks, investors have piled into NVIDIA shares knowing that the company’s earnings were approaching.
Invidia shares have rallied 30% since August 5th, when the shares were trading at $100, all the way up to their highs of $130. That number that you wrote down first.
That 30% rally was driven solely by investors’ expectations.
The expectation is that NVIDIA can't and won't miss on their earnings announcement. To go one step better, investors expected in NVIDIA will give us an impressive outlook for the next quarter and fiscal year?
Last week, to make the point even more clear, we saw four different analysts from Wall Street come out and raise their expectations for Invidia's earnings, even though they pointed out that there may be delays to the company’s new Blackwell chip and architecture.
This morning, CNBC reported the following…
When the analysts are telling us not to worry about something as big as a company’s new technology being delayed, it’s usually time to be a little cautious about the market’s valuation of that company.
That’s all I’m saying here.
From a long-term outlook, NVIDIA shares remain bullish and the company will hold its leadership of the AI chip industry.
But at this moment in time, the stock appears to be set up for a healthy correction as we’ve seen with some of the other Magnificent Seven stocks.
That would be a good thing. It serves to reset expectations lower, which would help the price run higher over the long run.
$140 is just another 12% higher than today’s price of NVIDIA. It’s the price that you should mark as the potential trigger for a “sell the news” price trigger.
After Thursday’s report, we should expect one of two things from the stock price… a move higher or lower.
A move above $140 is going to put the short-term traders in the selling mood.
We call is a “sell the news” or “sell the fact” selloff. The move that comes after the news cycle has played out on the stock or the market.
A “Sell the News” move after NVIDIA’s positive earnings will likely trade the stock to $110, where buyers will the come into the market in force, ready to drive NVIDIA shares to their new all-time highs well above $150.
Let’s Say Earnings are “Slightly Less” or the outlook is Lower than Expected.
This is where the numbers $100 and $80 come into play.
NVIDIA shares just traded briefly below $100 on August 5, so any unexpected news from the earnings report will see the stock immediately trade 20% lower to $100.
At that price, we’ll see some short-term support from the round-numbered aspect of the price, but the bulls will still be looking to get out of this crowded trade, resulting in an $80 target for NVIDIA.
Remember that “healthy correction” that I described? The $80 level would represent that exactly.
It would measure to a 40% pullback from its June highs – something NVIDIA stock hasn’t seen October 2022 – and still land the stock above its bullish 200-day moving average.
Let’s Wrap it Up with a Scorecard Chart
