Key points
- Nvidia is a crowded sector and ripe for consolidation/correction, but it still makes sense to be long.
- Market sentiment, including retail traders, analysts and institutions, is solid and pushing the market to new highs.
- Traders are selling the news after the GTC developer conference, but a buy-the-dip opportunity is opening up.
- 5 titles we prefer to NVIDIA
Go long NVIDIA NASDAQ:NVDA the stock still makes sense because the multi-billion dollar AI opportunity has yet to materialize and Nvidia is the dominant source. Its chipsets, GPUs and accelerators are just the tip of an iceberg that includes a full set of services. Nvidia has evolved from a simple chipmaker into a technology powerhouse that will drive change over the next decade.
To put this opportunity in perspective, the AI market is expected to grow 9x over the next six years to nearly $2 trillion. Since Nvidia already controls about 80% of the market, is advancing the technology today, and is raising prices, it should continue to grow and exceed expectations for the foreseeable future.
Nvidia improves artificial intelligence and expands partnerships
The two main takeaways from the Nvidia GTC Developer Conference are that this company is advancing AI and expanding its partnerships, solidifying its position as a full-stack AI provider. Among the new or expanded partnerships is Work With Global Spire NYSE: SPIR to promote AI-based weather forecasting and advances in medicine and transportation. The company says several medical technicians are using AI to improve drug discovery while transportation companies are applying it to fleet management.
The advancement towards artificial intelligence is called Blackwell. Named after a famous mathematician, Blackwell is a new GPU platform with significantly greater speed, processing power and efficiency than the previous system called Hopper. The new platform features 208 transistors and 192GB of HBM3E memory. Companies planning to use the new chips include From Amazon NASDAQ:AMZN AWS, Google’s NASDAQ:GOOG cloud, That of the Oracle NYSE: ORCL Second generation data centers e Microsoft NASDAQ:MSFT for Azure.
Supply has been a concern for NVIDIA and AI as demand has outpaced it compared to last year. However, numerous chip manufacturers, including Micron NASDAQ:MUSK Hynix, Taiwan semiconductors New York Stock Exchange: TSMAND SAMSUNG OTCMKTS: SSNLF, are expanding their production to match. Samsung, SK Hynix and Micron are putting a lot of effort into producing HBM3E memory chips, while TSM is working on cuLithogrography, a manufacturing process that will speed up chip production while improving their quality.
Nvidia’s market sentiment is decidedly bullish
Market sentiment is one of the drivers of the stock. Nvidia’s rise to stardom has been rapid and ongoing, attracting old and new money alike. As regards the position of the title on the Marketbeat platform, it is the most followed, most voted, most updated and most searched name. Analysts rate it a Moderate Buy and continue to lead the market higher.
The consensus target lags the market, but sixteen of the thirty-plus analysis reviews tracked by Marketbeat and published this year predict this stock will trade well above the consensus target. The range of new targets varies from a low of $800 up to a high of $1,200, implying a 35% upside. Institutional holdings are also robust, with institutions buying on the balance sheet for six consecutive quarters and activity rising in the first quarter of 2024.
The technical outlook for Nvidia: Sell the news, buy the dip
Price action in Nvidia is moving lower following the GTC conference, which suggests a news sell event is underway. However, as predicted by the news, the company is poised to continue accelerating its operations soon, suggesting that a buy-the-dip opportunity is also opening up. In this scenario, the market could retreat to $825 or lower before rebounding, but a rebound is expected. Assuming the market for NVIDIA finds support at or above the 30-day EMA, it should recover and reach a new high by June.
If not, Nvidia may not reach a new high until the second half of 2024. Nvidia stock has a high valuation, which could put the market into a wait-and-see mode. However, growth prospects bring valuation back into reasonable territory for blue chip technologies as early as next year, so the market may not have to wait long. The next earnings report is due in late May, when reported revenue is expected to rise 240%.
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