Nvidia Stock Up 17% in November – Time to Buy NVDA Stock?
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The price of Nvidia stock has gone up a total of 17% in the first few days of November following yesterday’s pronounced 12% single-day uptick that came after a Wells Fargo analyst highlighted the potential of the firm to bank on the development of the so-called metaverse.
The American bank hiked its price target for Nvidia from $245 to $320 less than a month after Piper Sandler made a similar decision to push its 12-month forecast from $225 to $260.
The company is expected to make important announcements about its Omniverse development platform during the upcoming GTC 2021 Conference, which is expected to take place next Tuesday.
“We see Nvidia Omniverse as a key enabler [and] platform for the development of the Metaverse across a wide range of vertical apps—industrial, manufacturing, design & engineering, autonomous vehicles, robotics, etc.”, stated Aaron Rakers, the analysts covering Nvidia stock for Wells.
He added: “Long term, we think the market opportunity could be even greater as digital assets and digital twins become significant economic drivers”.
Many large corporations have been joining the chorus of interested parties who will be developing solutions or even platforms that can power this virtual world – among those included Facebook, which underwent a rebrand as part of a pivot to highlight the importance of this field for the future of its business.
What’s next for Nvidia stock following yesterday’s pronounced jump? In this article, we take a closer look at the price and fundamentals of NVDA stock to possibly answer that question.
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Nvidia Stock – Technical Analysis
The price of Nvidia stock went vertical yesterday following this bullish call from Wells. This is a company that is very popular among both retail and institutional investors due to the multiple tailwinds that are playing in its favor and the positive performance it has had in recent quarters.
However, yesterday’s jump is pushing the price near the 3.618 Fibonacci extension shown in the chart and way above its short-term moving averages (27% above the 20-day SMA and 32% above its 50-day SMA).
Moreover, the price of NVDA stock is even more overstretched when compared to its 200-day simple moving average, which is currently standing at $178 per share. This results in the stock trading 67% above that mean.
These readings increase the odds of an upcoming swift correction and the same goes with momentum readings as the daily Relative Strength Index (RSI) has posted its highest overbought reading since 2016 while the MACD has surged to its highest level in years.
Finally, yesterday’s trading volumes exceeded the 10-day average by more than 4 times while the price settled 5% below its intraday highs of $313.7 per share.
All things considered, the downside risks for Nvidia at this point are just too high and they far exceed the upside potential that the stock has to offer at this level.
Nvidia Stock – Fundamental Analysis
Nvidia sales have surged in the past twelve months to record levels at $22 billion on the back of strong demand across the board amid an ongoing chip shortage and favorable pricing and product mix.
The same can be said for gross margins, which have jumped to nearly 64% during this same period while operating margins stand at 33.5% and net margins at 32%.
At its current price of $298 per share, the firm is trading at 70 times its forecasted earnings per share for the next twelve months.
It is important to note that growth beyond the 2022 fiscal year is expected to stall as the company will have to deal with tough comps. In this regard, the downside risk for Nvidia stock is augmented as market participants may start to cash out on their gains once some of these tailwinds start to fade.
Considering the stock’s elevated forward P/E ratio, an upcoming correction go from moderate to severe depending on how things play out.
This metaverse call from Wells is good news in the long run but, since it is still fairly early to estimate the extent of the impact that the Omniverse platform will have on the company’s financial performance, the mid-term outlook is not necessarily bullish amid the currently overstretched technical and fundamental status of the stock.
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