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Key insights:
- Nvidia stock price slipped after publishing strong financial results.
- Technical analysis shows that a surge to $250 is possible.
- The company will need to overcome major risks for this to happen.
Nvidia stock price crashed by over 1% on Thursday as the market reacted to its strong financial results. NVDA stock dropped to $179, down from the year-to-date high of $184. This article explains why the stock could still rebound this year and the risks that it will need to overcome.
Nvidia Stock Price May Rebound After its Strong Earnings
As it has done many times before, Nvidia published strong financial results that were much better than expected. Its quarterly revenue jumped to $46.7 Billion in the second quarter, up 6% from Q1 and 56% in the second quarter.
Most of this revenue came from the data center business. This involves its Blackwell chips, which are used to train top AI models by companies like OpenAI and Google.
These numbers were more impressive because the company did not ship any H20 chips to China. It is one of the fastest-growing markets in the technology industry.
Nvidia’s profits continued rising, with the net income reaching $26 Billion. This was higher than the annual revenue it made a few years ago. As a result, it continued to return cash to investors, including $24.6 billion in the first half of the year.
It has $14 Billion more to return, and the board approved another $60 Billion. Nvidia stock price dropped after earnings because the management warned that its growth was slowing. However, this aligns with what most analysts expect, as the AI industry cannot grow forever.
Nvidia anticipates its revenue, excluding any H20 chips to China, will be $54 Billion. As a result, according to Bloomberg, ten analysts raised their NVDA stock price forecast to $202.
Nvidia Stock Faces Substantial Risks
Nvidia stock faces some major risks that the company will need to overcome. First, there is the risk that just a handful of companies make up about 50% of its sales. Microsoft accounts for about 20% of its sales, while other names like Amazon and Google.
It is always a risk when a company depends on a handful of clients since losing one can have a major impact. These hyperscalers have pledged to keep investing in data centers. However, a time will come when they will need to pull back.
For one, there have been concerns that the investments are not translating to returns. The other risk is that some Chinese companies are gaining market share. One of these companies is Cambricon. Its stock has surged this year after its revenue jumped by 4,000% in the last quarter.
Beijing is incentivizing Chinese technology companies to embrace local chips as it competes with the United States. Nvidia has shifted its core focus to data centers.
Other gaming, PC, visualization, and automotive segments now contribute relatively little revenue. This change introduces a new concentration risk for the company. Gaming made $4.3 Billion, while the other two brought in less than $1.2 billion, combined.
Nvidia Share Price Technical Analysis
The weekly chart below shows that the NVDA stock price has rallied strongly. It recently jumped and flipped the resistance at $152 into support.
Nvidia stock has remained above the 50-week and 100-week moving averages. It is a good thing. Despite the recent surge, NVDA is still not overvalued as the RSI has moved to 69.
This means it has more upside before it gets highly overbought. It is when reversals happen.
Nvidia stock is also at the weak, stop, & reverse point of the Murrey Math Lines. Therefore, there is a likelihood that it will jump to the extreme overshoot point at $250 before it reverses. A drop below the key support level at $152 would be concerning.
This level aligns with a strong pivot reversal zone. Falling below it would invalidate the bullish NVDA price forecast. It could also signal further downside ahead.
Disclaimer
This article is for informational purposes only and provides no financial, investment, or other advice. The author or any people mentioned in this article are not responsible for any financial loss that may occur from investing in or trading. Please do your research before making any financial decisions.
