The highly anticipated earnings report from Nvidia (ticker: NVDA) is set to be released later today, attracting significant attention from investors. While expectations are sky-high for the chip maker, one analyst points out a bearish vulnerability that could have wider market implications.
Wall Street has been buzzing with bullishness over Nvidia in recent days, as analysts widely anticipate another blowout quarter and a strong outlook. The company’s stock price has already soared over 210% this year, providing a boost to both the S&P 500 and Nasdaq.
Nvidia’s fundamentals are solid, as its chips are considered essential for the growing artificial intelligence (AI) industry. The surge of investor excitement around AI has been a prominent market trend in 2023, propelling Nvidia forward. And there are indications that this high-growth tech bubble may continue to expand.
The previous earnings report from Nvidia in May surpassed expectations and demonstrated the immense potential of AI. This led to a nearly one-third increase in the stock price and had positive effects throughout the market.
Therefore, the upcoming announcement of Nvidia’s fiscal Q2 earnings is expected to once again shape the performance of the Nasdaq 100 in the remaining months of 2023. This will likely have a spillover effect on global equities, as noted by analyst Kelvin Wong of broker Oanda in a Wednesday memo.
Concerns for Nvidia’s Stock Momentum
Investors are growing concerned that the expectations surrounding Nvidia may be too high. In order to maintain the positive momentum of the stock, Nvidia needs to exceed expectations by a significant margin. Currently, the stock is trading at a valuation of 237 times last year’s earnings, which adds pressure to outperform in order to justify such a high valuation.
The optimistic perspective is that the growth potential for Nvidia in the field of artificial intelligence (AI) could be so substantial that it warrants a fundamental reevaluation of the stock’s valuation based on forward earnings projections. However, overcoming exceptionally high expectations is now a greater challenge for Nvidia compared to its previous May 2023 earnings release.
If there are any slight disappointments in the Q2 earnings numbers or outlook trend, it is likely to trigger a significant negative feedback loop in Nvidia’s share price. This could potentially endanger the current bullish trend of the Nasdaq 100.
Technical Analysis and Bearish Trends
Another concern for investors is the outlook for Nvidia’s stock based on technical analysis. Technical analysis relies on trends in market data and prices rather than external fundamentals, and it currently paints a bleak picture for Nvidia.
According to Wong, the current price actions of the stock indicate a higher risk of a multiweek bearish reversal. Despite reaching a record intraday high of $481.87 on Tuesday, Nvidia failed to sustain this bullish momentum. The stock closed below the key resistance level of $474.10, forming a bearish trend with the highest volumes seen in over a month.
Wong emphasizes that it is crucial to keep an eye on the important medium-term support level at $405.95. Based on U.S. premarket trading, Nvidia stock is expected to open around $460.
While investor sentiment and animal spirits may have a greater influence on Nvidia’s stock movements after earnings, it is still valuable to consider the technical analysis of the stock.