Semiconductor Bulls Look to Nvidia Earnings for Salvation
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Nvidia Corporation (Ticker: NVDA) has been the clear leader in the highflying semiconductor sector that's powering the artificial intelligence (AI) revolution. Recently though, the stock has corrected along with chip shares, so bulls are hoping the company’s upcoming earnings report could help get things back on track. Bears, meanwhile, are salivating at the potential for more blood.
Nvidia’s quarterly earnings are always a major catalyst for the entire chip sector, and anticipation is already building for the company’s quarterly results expected in late May given the recent dip.
We all know charts are front and center of traders’ minds. And Nvidia’s chart has undergone a change in tone lately. As the chart below illustrates, the stock has been trading above its 50-day moving average* during the entire 2024 rally. Until recently, that is. Bulls want Nvidia to regain its 50-day average in short order, one sign that investors are supporting the stock.
Source: StockCharts.com, April 24, 2024.
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results.
Just a Blip, or the Top?
Letting your winners run in transformative companies like Nvidia Corporation, Apple, Inc. (Ticker: AAPL), and Amazon.com, Inc. (Ticker: AMZN) is always harder in real time without the benefit of hindsight. That’s because some of the market’s biggest growth winners throughout history have experienced sickening sell-offs during their runs. Let’s not forget that investors who stuck with Amazon have endured drawdowns of as much as 90% along the way (Yahoo Finance). And Nvidia lost more than 50% at one point in 2022, which seems like ancient history given its recent flirt with $1,000 a share. Of course, volatility provides opportunities to trade around a position.
Despite Nvidia’s recent correction, the bulls aren’t going to go away quietly on this favorite name. Here are some potential positive catalysts they’ll be watching:
- A helping hand from Tesla: CEO Elon Musk disclosed during Tesla Inc.’s (Ticker: TSLA) first-quarter earnings call that the car company aims to install 85,000 Nvidia H100 chips by the end of 2024 (they already have 35,000 on hand). As Benzinga notes, if this plan comes to fruition, Tesla would likely surpass tech giants Amazon and Alphabet, Inc. (Ticker: GOOGL), becoming one of Nvidia’s biggest customers.
- The next-generation chip: Nvidia’s next-gen chip, the Blackwell B200 GPU and GB200, has been dubbed a “superchip,” far exceeding the competition and cementing the company’s technological lead. At $30,000–$40,000 a pop, bulls see strong demand leading to surging revenue.
- Is Nvidia more than a chip company? That’s what Evercore ISI analyst Mark Lipacis says. In the words of Business Insider: “The key thesis behind Lipacis' bullish call is that Nvidia is an AI ecosystem play,” rather than just a chipmaker, and is poised to capture most of the value created during its computing era. Lipacis’ target price is $1,160, with an (even more) bullish scenario of $1,540.
On the bearish side, the hope is that more selling is required before Nvidia's shares find a potential base. Indeed, investors have almost been programmed to buy the dip in Nvidia amid the hype over AI’s potential. But the market has a nasty habit of fooling investors when everyone is on the same side of the boat, right? It could be argued that Nvidia’s shares are still frothy after the recent correction and that bulls still need to be knocked down a peg or two.
All Eyes on Nvidia Earnings
The big upcoming catalyst for both bulls and bears is Nvidia’s quarterly earnings report, which is expected to cross around May 22. Wall Street analysts are looking for earnings of $5.14 a share, up from 88 cents in the year-ago quarter, according to Nasdaq. In terms of revenue, the consensus forecast is $24 billion for the quarter, a huge jump from $6.5 billion in the same quarter last year. It’s amazing that a company of Nvidia’s size (over $2 trillion in market cap) is expected to post a nearly 300% rise in sales. Clearly, Nvidia faces high expectations heading into its quarterly earnings release. Get your popcorn ready.
Bull or Bear, Here’s How to Bet for or Against Nvidia
Direxion has two single-stock ETFs that give traders the opportunity to make aggressive bets on Nvidia. The Direxion Daily NVDA Bull 2X Shares (Ticker: NVDU) seeks daily investment results, before fees and expenses, of 200% of the performance of Nvidia Corporation common stock. Meanwhile, traders itching to bet against the stock can do so using the Direxion Daily NVDA Bear 1X Shares ETF (Ticker: NVDD), which seeks daily investment results, before fees and expenses, of 100% of the inverse performance of Nvidia Corporation common stock.
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Semiconductor Industry Risk – Semiconductor companies may face intense competition, both domestically and internationally, and such competition may have an adverse effect on such companies’ profit margins. Semiconductor companies may have limited product lines, markets, financial resources or personnel. Companies in the semiconductor industry may have products that face obsolescence due to rapid technological developments and frequent new product introduction, unpredictable changes in growth rates and competition for qualified personnel.
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