Nvidia (NVDA) chips are driving a future of self-driving cars and cloud gaming. NVDA stock recovered on strong gains and a better-than-expected outlook, but supply remains limited. Is Nvidia stock a good buy now?
For those now looking for top large-cap stocks to buy, here’s a deep dive into NVDA stocks.
NVDA Equity Basis
The fabulous chipmaker pioneered graphics processing units, or GPUs, to make video games more realistic. It expands in AI chips, used in supercomputers, data centers, drug development and driverless cars.
For example, it will provide the chip that acts as the “brain” for the Nioz (NIO) ET7, Nio’s first autonomous driving model when it arrives in Q1 2022. And Nvidia already delivers Amazon (AMZN) Web services with chips for data centers.
Last September, Nvidia unveiled new GeForce gaming GPUs, praising a generational leap in performance. In April, Nvidia unveiled its first CPU, called Grace, which uses chip designs from UK-based Arm for advanced computing and AI applications.
Nvidia’s proposed $40 billion ARM acquisition is under scrutiny in the UK, with a ruling expected by the end of the month.
Nvidia’s GPUs act as accelerators for central processing units, or CPUs, made by other companies. With its own CPU, Nvidia offers a more complete system for data centers, directly challenging processor giants Intel (INTC) and Advanced micro-devices (AMD).
Nvidia stock technical analysis
On July 20, Nvidia completed a 4-for-1 stock split.
Nvidia deserves an unbeatable IBD Composite Assessment of 99. In other words, it outperformed 99% of all other stocks in terms of technical and fundamental metrics combined. In fact, NVDA belongs to the IBD standings, a list of stocks with the most potential for big profits.
Investors should generally focus on stocks with CRs of 90 or even 95.
Shares rebounded from the 10-week moving average, which offers a buy point around 181.39, according to MarketSmith Chart Analysis. It’s a follow-up article, meaning there’s an opportunity to add stock. Nvidia shares are within the 10% buy zone, which goes to 20.08. The chipmaker quickly hit a 20%-25% profit target from a May breakout past a traditional buy point, then pulled back.
The relative strength line for NVDA stocks has risen but remains below the highs. A rising RS line means a stock is outperforming the S&P 500 index. It is the blue line in the graph shown.
The Accumulation/Distribution Rating is a B-, a sign of poor institutional purchases over the past 13 weeks. The chip stock has strong institutional support: in June, 4,444 funds owned NVDA shares. Nvidia even shows eight quarters of increasing fund ownership, the IBD stock control tools show.
Nvidia stock has an RS rating of 90, meaning it has surpassed 90% of all stocks in the past year. The iShares PHLX Semiconductor ETF (SOXX) holds both Nvidia and AMD stock.
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Nvidia Revenue and Fundamental Analysis
Nvidia’s EPS rating is a superior 97 and his SMR assessment is an A, on a scale from A+ to worst E. The EPS rating compares a company’s earnings growth to other stocks, and the SMR rating measures revenue growth, profit margins, and return on equity.
In the first quarter, Nvidia’s revenue grew 103% while revenue grew 84%. The year-over-year improvement, in both the top and bottom lines, was the highest in four quarters. Gaming chip revenues were up 106%. Data center chip sales increased 79%, partly as a result of last year’s Mellanox purchase. In addition, Nvidia drove higher revenue for the current quarter.
Analysts expect earnings per share to rise 30% for the full fiscal year 2022, as revenue is set to rise 49%, according to FactSet. This is despite Nvidia, like other fable chip makers, facing supply restrictions at chip foundries such as Taiwan semiconductor manufacturing (TSM). On July 15, Taiwan Semiconductor said it expects chip supply to remain tight through 2022.
Of the 29 analysts covering NVDA stock, 28 rate it as a buy, one has a hold and none has a sell, according to TipRanks.
The pandemic fueled demand for Nvidia chips in home computers, video games and data centers. Now the demand for chips is so high that there is a worldwide shortage.
Nvidia remains limited in the supply of chips, although the situation is reportedly improving.
The chip shortage hit car manufacturers especially hard. Nvidia makes chips for car infotainment and autonomous driving systems.
As cloud gaming grows around the world, Nvidia’s new cloud gaming service could become a growth engine. Rival services include Google Stadia, Microsoft Xbox Network, and Amazon Luna.
This year, Nvidia started making special chips for mining cryptocurrencies. The cryptocurrency mining processors, or CMPs, were launched in February and generated revenue of $155 million in April.
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Rival chip stocks
Nvidia and AMD are established leaders in the semiconductor industry.
Among the best chip stocks, Nvidia helps take the lead IBD’s Electronics Semiconductor Fabless industry group. Fabless companies contract with foundries to make the chips they design. Other chip companies own their manufacturing plants.
In addition to NVDA, fable chip stocks include Qualcomm, broadcom (AVGO) and Monolithic Energy Systems (MPWR). The fabless group ranks poorly at number 121 out of 197 industry groups, but Nvidia is a highly regarded chip stock in it.
For the best returns, investors should focus on companies that lead the market and their own industry group.
Is Nvidia Stock A Buy Now?
At a fundamental level, Nvidia’s revenues and sales are rising again after sharp declines. Recent acquisitions increase opportunities in emerging growth areas such as data centers, automated cars and cloud gaming. The adoption of cryptocurrencies could further boost demand for Nvidia chips.
Meanwhile, new gaming chips underscore Nvidia’s continued dominance in core markets.
Nvidia is a leader in the fabless chip group. As the global chip shortage continues, it could take months for Nvidia GPU supply to catch up with demand.
Leaderboard Shares NVDA offers a new follow-on 181.39 buy-point-off support on the 10-week line. It falls in the right buy range and is backed by a strong RS line.
Bottom line: Nvidia stock is a buy right now. As a leading chip stock with exposure to top markets in data center and gaming, Nvidia is always one to keep an eye on.
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