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Asset Watch
Thursday, November 28, 2024
After elevated expectations led to a disappointing earnings release by NVIDIA, the stock has suffered despite the S&P 500’s broadening rally. However, since the AI giant still reported robust results, its rapid price rise was likely the correction catalyst, not a deterioration in the company’s fundamentals.
But should you add exposure and position for the next leg higher?
While sentiment for NVIDIA may have cooled, analysts are enthusiastic about its long-term outlook. For example, Jefferies analyst Blayne Curtis raised his price target to $185 on Nov. 21 and wrote:
“This was never the quarter that NVIDIA was going to blow out numbers, and we are not overly concerned with any of the issues on this call, as we see increasing beats as Blackwell ramps and still a path above $5 of EPS next year…
“The name will always struggle with elevated expectations, but business momentum should accelerate from here as Blackwell ramps and that has historically been the time to own the stock.”
Similarly, Cantor Fitzgerald analyst C.J. Muse has a $175 price target and told clients:
“We do anticipate April-quarter revenues to accelerate more meaningfully on a sequential [basis]. This, combined with bottoming gross margins and accelerating back to the 75% in [the second half of 2025], continue to support the bull-case vision for $200 billion-plus in data center revenues and EPS tracking to $5.50+.”
As such, upside earnings surprises could be the story in the months ahead.
From a technical perspective, NVIDIA has price support in the $135 area and the 50-day moving average isn’t far behind near $134. The bulls should put up a fight in this zone, as the 50-day MA helped end the correction in October 2024.
If the $134-$135 area breaks, there is more price support near $130, and the 100-day MA is near $126. Consequently, it will likely take a major macroeconomic event for the stock to sink below these key levels, given that the earnings risk has already come and gone.
Because NVIDIA is a highly volatile stock, averaging in is typically a wise decision. One approach could be to half-size the position near $135 and add the other half if NVIDIA reaches the 100-day MA near $126.
That way, you can manage risk and still reap the rewards if NVIDIA rallies to $175 or $185 in 2025.
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