To The Moon

Nvidia (NVDA) is a giant in data centers and gaming, with AI chips a growth opportunity. A big earnings surge in late May added to already massive gains in 2023. Is Nvidia stock a buy as it keeps its lofty perch?

Semiconductor, AI News

On May 24, graphics-chip maker Nvidia crushed Wall Street's targets for its fiscal first quarter on record data-center sales.

Chief Executive Jensen Huang said his company is ramping up production to meet the massive demand for artificial intelligence (AI) technology.

Customers are using NVDA chips for AI applications, including generative AI. In the tech industry's fierce battle for AI dominance, the advanced chips needed for generative AI, such as the ChatGPT chatbot, are key.

For those looking for top large-cap stocks to buy now, here's a dive into NVDA stock.

Nvidia Stock Technical Analysis

The chip stock surged more than 24% on earnings May 25 and extended gains on May 26.

Shares set an intraday high of 394.80 on May 25, passing their prior record high of 346.47, reached in November 2021.

On May 1, Nvidia stock had topped a 281.20 buy point from a three-weeks-tight pattern. Its most recent entry was support at the 10-week line last week, around 277.

Shares are now way extended. In fact, NVDA stock is nearly 100% above its 200-day moving average. So, investors could consider taking profits now, but maybe not sell unless other red flags appear. Many leaders peak once they get 70%-100% above their 200-day lines.

Year to date, Nvidia shares are now up more than 165% after crashing in 2022.

NVDA earns an IBD Composite Rating of 98 out of 99. In other words, Nvidia stock has outperformed 99% of all other stocks in IBD's database in terms of combined technical and fundamental metrics.

Investors generally should focus on stocks with Comp Ratings of 90 or even 95 and above. Nvidia stock often earns a spot on the IBD 50, Big Cap 20 and Sector Leaders lists.

The relative strength line made a record high May 26 with the stock, the IBD MarketSmith charts show. A rising RS line means that a stock is outperforming the S&P 500. It is the blue line in the chart shown.

The IBD Stock Checkup tool shows that NVDA carries a Relative Strength Rating of 99. That means it has outperformed 99% of all stocks in IBD's database over the past year.

The iShares PHLX Semiconductor ETF (SOXX) holds both Nvidia stock and AMD stock.

Nvidia Earnings

Nvidia's EPS Rating is 68 out of 99 and its SMR Rating is a B, on a scale of A to a worst E. The EPS rating compares a company's earnings growth to other stocks. Its SMR Rating gauges sales growth, profit margins and return on equity.

On May 24, the chip giant delivered a massive, AI-fueled beat-and-raise report. The Nvidia earnings report, including a super-bullish sales forecast, drew superlatives on Wall Street.

The Santa Clara, Calif.-based company earned an $1.09 a share on sales of $7.19 billion in the quarter ended April 30. On a year-over-year basis, Nvidia earnings dropped 20% while sales declined 13%.

In Q1, Nvidia's data-center sales rose 14% to $4.28 billion. Its gaming-chip sales declined 38% to $2.24 billion.

Analysts expect triple-digit earnings gains for the next several quarters, including the current quarter, which ends in July. They see Nvidia earnings rebounding more than 116% in fiscal 2024, on a 48% sales gain. Last year, Nvidia earnings fell 25% per share.

Out of 47 analysts covering NVDA stock, 38 rate it a buy. Eight have a hold and one has a sell, according to FactSet.

NVDA Backstory, Rivals

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 and drug development.

Nvidia's GPUs act as accelerators for central processing units, or CPUs, made by other companies.

In addition, Nvidia chips are used for Bitcoin mining and self-driving electric cars.

Nvidia has made a big push into metaverse applications.

Fabless chip stocks include Qualcomm (QCOM), Broadcom (AVGO) and Monolithic Power Systems (MPWR).

Currently, the fabless group ranks No. 18 out of 197 industry groups. Fabless companies design the hardware while outsourcing the manufacturing to a third-party firm.

For the best returns, investors should focus on companies that are leading the market and their own industry group.

Is Nvidia Stock A Buy?

On a fundamental level, Nvidia earnings are expected to return to growth. They should more than double this fiscal year, driven by booming chip sales for data centers and artificial intelligence.

The fabless chipmaker is expanding in other growth areas such as automated electric cars and cloud gaming as well. The adoption of the metaverse and cryptocurrencies could further stoke demand for Nvidia chips.

However, macroeconomic uncertainties and risk of global recession linger.

NVDA stock has staged a strong comeback in 2023, soaring 165%. But shares are far beyond the proper buy range, and they may due for a pullback. Nvidia's latest earnings report renewed investor confidence in its AI leadership.

Bottom line: Nvidia stock is not a buy. After another spike on earnings, NVDA looks lofty and existing investors could take some profits off the table. As a leading chip company with exposure to top end-markets, Nvidia is always one to watch.