Nvidia stock recouped a portion of Wednesday's 6.6% drop on Thursday, as shares of the artificial intelligence leader remain below a short-term moving average. Is Nvidia stock a buy now?
In a day when the tech-heavy Nasdaq lost 0.7%, Nvidia fared better and gained 2.8%. Volume again was below average Thursday. Shares are trying to recover from Wednesday's steep drop.
On Wednesday, chip stocks, including Nvidia chipmaker Taiwan Semiconductor, sank on fears of heightened U.S. trade tensions with China. In addition, former President Donald Trump suggested that Taiwan should pay the U.S. for protection in a Bloomberg interview.
Nvidia shares plunged below their 21-day exponential moving average in Wednesday's drop, a level where the stock found support in June and early July. Nvidia stock is around 5% above its 50-day moving average. It is a time to lock in some profits and have sell rules in place. If the stock violates the 50-day line with force and heavy volume, that would trigger a sell signal.
Nvidia stock joined other Big Tech stock including Tesla, Apple and Microsoft in a sell-off July 11 as investors rotated out of tech names. The tech-heavy Nasdaq composite had gotten extended after reaching record highs, and it's not a big surprise the Magnificent Seven stocks have been retreating.
Was Nvidia's Pullback Short-Lived — Or Just Getting Started?
The leading AI stock shot up around 4.5% in light volume on July 3, which helped it bounce off its 21-day line. The stock had been trading tightly for several days, calming down after its June 20-24 tumble, its worst three-day rout since December 2022. It lost $430 billion in market cap over the three day sell-off, the most ever in its history.
The IBD 50 and Big Cap 20 stock lost around 16% in the three day sell-off.
It is still the No. 1 stock out of 39 in IBD's fabless semiconductor industry group, which dropped to the No. 4 spot out of the 197 IBD groups. Nvidia lost its trifecta of perfect 99 IBD ratings as its Relative Strength Rating dipped to 98. But it still boasts 99 IBD Composite and Earnings Per Share Ratings.
Nvidia broke out of a second-stage cup-with-handle base with a 92.22 buy point on May 15. On May 23, the stock jumped to new highs after the company crushed fiscal first-quarter estimates. The AI stock shot up and by late May had reached a 20% gain from the lower entry. This justified taking at least some profits, but Nvidia kept charging higher.
One of the first signs that Nvidia was topping came June 6 to 18. Volume started drying up during that period as the stock climbed to new levels.
Are These Magnificent Seven Stocks A Buy Now?
Alphabet | Amazon | Apple | Meta | Microsoft | Tesla
Nvidia stock reached an all-time high the morning of June 20, before profit-takers took over and the stock reversed sharply lower. Shares closed 3.5% lower, then lost another 3.2% the following day. The sell-off came in higher-than-average volume. It looks as if the June sell-off is having a second leg down in July and the stock is back near the low point around 118.
Still, Nvidia stock has a big cushion from the 92.22 and 97.40 buy points.
Profit Estimates Robust But Fading
Nvidia is arguably the leader of the AI investment theme. After establishing itself as a premier designer of chips for high-performance computer graphics, the company's technology became a go-to source of chips for the massive computing needs of artificial intelligence applications.
Nvidia blew past fiscal first-quarter profit and sales estimates on May 22. Its quarterly adjusted earnings-per-share grew 461% over the prior year's period. Revenue grew 262% to $26 billion. It reported record quarterly data center revenue of $22.6 billion, an increase of 427% year over year.
Nvidia had a 10-for-1 stock split, effective June 7. Shares had topped the psychological 1,000 level prior to the split.
The consensus estimate for the current quarter is for 137% growth, then dropping off to 75% and 49% the following two quarters, according to MarketSurge.
Earnings for the fiscal year that ended in January grew 294%. FactSet estimates call for fiscal 2025 EPS of $2.70 for a 108% year over year increase. For the next fiscal year, estimates show earnings growth tempering to 36% to $3.67 per share.
Is Nvidia Stock A Buy?
Despite recent drops, shares remain extended from their latest buy points and are not in a buyable pattern, according to IBD MarketSurge.
In 2023, the AI stock had a huge 239% run and it's up around 142% so far this year, even after the recent drop.
It's best now to wait for selling to subside and another base to form or follow-on buy point to present itself to buy the AI chip stock. Therefore, it is not a buy right now.
Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.
