To The Moon

Overview

$NVIDIA Corp(NVDA)$ has recently reached another all-time high (ATH), peaking at $140.89 intraday before closing at $136. This surge aligns with the stock’s remarkable rally driven by robust AI demand, GPU leadership, and supply chain improvements. However, the pullback toward the close raises questions about whether Nvidia has topped out in the short term or if further gains are possible by year-end.

Fundamental Analysis

Bull Case for Further Upside:

1. AI and Data Center Growth: Nvidia remains the undisputed leader in the GPU market, which powers AI, data centers, and autonomous systems. Demand from companies building AI models and infrastructure remains strong, suggesting Nvidia’s revenue growth trajectory is not yet exhausted.

2. Earnings Momentum and Upward Revisions: Recent quarters have seen Nvidia deliver earnings surprises, driven by exponential growth in its data center and AI businesses. Analysts are revising estimates higher, and Nvidia’s management may also provide bullish guidance in the next earnings call, which could trigger another rally.

3. Buybacks and Strong Cash Flows: Nvidia’s robust cash flows support ongoing share buybacks, providing downside support and acting as a catalyst for future share price gains.

4. Seasonality and Market Sentiment: Historically, tech stocks perform well in the last quarter of the year as fund managers rebalance portfolios and retail flows increase. If the overall market sentiment remains positive, Nvidia could attract further buying momentum.

Bear Case for a Potential Pullback:

1. Valuation Concerns: Nvidia’s price-to-earnings (P/E) ratio is trading at a premium relative to both the semiconductor sector and its historical averages. This suggests that much of the future growth may already be priced in, limiting near-term upside.

2. Interest Rates and Macro Headwinds: Rising bond yields and persistent inflation could create headwinds for high-growth tech stocks. Nvidia, despite its growth story, is still exposed to macroeconomic risks that could lead to profit-taking by investors.

3. Supply Chain Risks: Although Nvidia has managed supply chain disruptions effectively so far, any unexpected bottlenecks or geopolitical tensions could disrupt production and weigh on sentiment.

4. Profit-Taking and Sector Rotation: Some investors may view the $140 peak as an opportunity to take profits. Additionally, there is always a risk of sector rotation away from high-growth tech stocks toward defensive sectors if the market turns cautious.

Technical Analysis

The technical indicators suggest that Nvidia is currently overbought, as seen in the Relative Strength Index (RSI) levels approaching 70. The stock’s pullback from $140 to $136 could indicate that a near-term correction is imminent. However, the uptrend remains intact as long as Nvidia holds above key support levels, such as $130, which also aligns with the 50-day moving average.

Given the volatility, it is likely that Nvidia could see consolidation in the $130–140 range in the short term. A breakout above $140 would signal further upside, possibly setting the stock up for a new high toward $150–160 by year-end. However, a break below $130 might trigger a sharper pullback to $120 or lower.

My Strategy: Balanced Positioning with Hedging

1. Core Long Position (Maintain Exposure):

Nvidia’s long-term fundamentals remain compelling, and I am maintaining a core long position in the stock. The AI boom is still in its early stages, and Nvidia’s dominant position in the GPU space provides a competitive moat. Any pullbacks are likely to be temporary, offering attractive re-entry points.

My allocation: 3–5% of my portfolio, ensuring exposure while managing risk.

2. Short-Term Call Spreads for Tactical Upside:

Given the possibility of a breakout above $140, I will purchase short-term call spreads to capitalize on near-term upside without committing too much capital. This provides exposure to further gains if Nvidia surprises on earnings or the market rallies toward year-end.

Possible call spread: Buy $140 calls and sell $150 calls (November expiry).

3. Hedge with Put Options to Manage Downside Risk:

To protect against a deeper correction below $130, I may consider buying protective puts. This hedging strategy mitigates losses in case of unexpected market headwinds or Nvidia-specific risks.

Possible option trade: Buy $130 puts (December expiry) to hedge the core position.

Please DYODD.