Nvidia Stock Hits a Wall at $184 as Experts Flag Circular Financing Risks

• Nvidia stock has found a strong resistance at the important resistance level at $184.
• It has formed a double-top pattern, pointing to a bearish breakdown.
• Analysts have warned about its recent investments in OpenAI and Intel.

The Nvidia stock price has found a major barrier at the important resistance level of $184 this year, and some analysts are questioning whether it has more upside following a series of investment announcements, including on OpenAI and Intel.

Nvidia Stock at Risk as Analysts Warn of Circular Financing

The Nvidia share price has remained in a tight range this month as investors assess its recent announcements.

One of its most notable announcements happened when it published its financial results and warned that its business was slowing.

Most recently, the company said that it would use its windfall to invest in Intel, a troubled semiconductor company. Its $5 billion investment in a competitor sent memories of when Microsoft invested in Apple in 1997, helping it to avert bankruptcy.

Nvidia announced that it would invest $100 billion in OpenAI, the parent company of ChatGPT. The investment will mirror a similar one in which Microsoft invested in OpenAI and let it use its Azure infrastructure.

In this case, the investment will help OpenAI accelerate its data center rollout using Nvidia’s chips. The $100 billion investment will be the biggest one a company has ever made.

The Nvidia stock price rose shortly after announcing the investment and then pulled back after that as investors questioned the rationale. Some analysts interviewed by Bloomberg noted that the deal could be a sign of an impending bursting of the AI bubble.

Most notably, analysts worried whether the deal presented a circular financing risk for the company. This situation is where Nvidia invests in companies and lets them keep buying its chips, creating an illusion of demand.

One possible reason why Nvidia is investing in OpenAI is to fend off competition from Broadcom, which recently announced a major deal for custom chips with OpenAI. It is unclear whether that partnership will continue, which explains why the Broadcom stock price has dropped.

Nvidia Faces More Challenges

Meanwhile, in a note released on Thursday, Yardeni Research warned that the Nvidia stock price could come under pressure soon if some of its top clients started reducing their AI spending.

Nvidia’s main risk is that it has a customer concentration risk. Microsoft accounts for about 20% of its revenue, while the other large American hyperscalers like Meta Platforms, Amazon, and Google account for about 30%.

The risk here is that its growth would be impacted if one or more companies decide to pare back their data center investments.

These firms may decide to pare back their investments because the Return on Investment (RoI) remains low. In a recent report, Bain noted that the tech industry will need an extra $2 trillion by 2030 in revenue to fund the expected AI boom.

Compounding the risk is that the company has largely lost China’s biggest market. Beijing has asked its top companies to embrace local chips in their AI investments.

This means that Nvidia may not participate in the country’s AI boom. For example, on Wednesday, Alibaba announced that it would boost its AI investments by about $53 billion, funds from which Nvidia would have benefited.

NVIDIA’s Stock Price Double Top Pattern Points to a Retreat

Meanwhile, another risk is that the stock has formed a double-top pattern at the all-time high of $184. This pattern is characterized by two peaks and a neckline, which, in this case, is at $163.

Measuring the distance from the double-top point and the neckline, and then the same one from the neckline, gives the potential target at $145, which coincides with the 200-day Exponential Moving Average (EMA).

On the other hand, a move above the double-top point at $184 will invalidate the bearish forecast and point to more gains in the near term. If this happens, the next important resistance level to watch will be at the psychological point of $200.