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​NVIDIA's huge rally: is trouble ahead?

​​​​Is the NVIDIA share price rally sustainable?

NVIDIA Source: Adobe images

​​​NVIDIA's huge rally: is trouble ahead?

NVIDIA's stock has seen an extraordinary rally in 2024, with shares up over 150% year-to-date. This surge has propelled the company's market capitalization to $3.1 trillion, rivalling tech giants like Microsoft and Apple. The stock's performance has been driven by soaring demand for NVIDIA's graphics processing units (GPUs) in AI applications and a recent stock split.

​Reasons for outperformance:

  1. ​NVIDIA is benefiting from a shift towards accelerated computing in data centres for AI tasks.
  2. ​The company's financial performance has been impressive, with projected revenue growth of 2x this year to $111 billion.
  3. ​NVIDIA reported stellar net margins of 57% in the last quarter.

​Potential risks & challenges:

  1. ​Increasing competition from other chipmakers like Advanced Micro Devices (AMD) and Intel, who are investing heavily in AI-focused chips.
  2. ​Big tech companies developing their own AI chips, potentially reducing reliance on NVIDIA .
  3. ​The possibility that current high demand for GPUs may ease as AI deployments move from training to inference stages.
  4. ​Questions about the return on investment for massive AI infrastructure spending.

​Market Expectations vs. Reality

​While NVIDIA's current valuation (50x forward earnings) isn't unreasonable given its growth, there are concerns about the sustainability of its momentum. The market may be overly optimistic in extrapolating short-term trends, potentially overlooking long-term challenges.

​NVIDIA analyst ratings

​LSEG Data & Analytics data shows a consensus analyst rating of ‘buy’ for NVIDIA – 18 strong buy, 36 buy and 5 hold.

NVIDIA analyst rating chart Source: LSEG Data & Analytics
NVIDIA analyst rating chart Source: LSEG Data & Analytics

​NVIDIA share price – technical view

​​The NVIDIA share price, which is up 172% year-to-date, hit a record high at $140.76 in June and has been consolidating below this level since then.

​NVIDIA daily candlestick chart

NVIDIA chart Source:
NVIDIA chart Source:

​Over the past week, the NVIDIA share price has risen again and seems to be heading towards its June peak at $140.76. If overcome, the next psychological upside target would be the $150 region.

​While the 10 and 24 June and 1 July lows at $118.83 to $117.01 underpin on a daily chart closing basis, the short-term uptrend in the NVIDIA share price stays intact.

​Failure at $117.01 would lead to a medium-term top being formed, though, which could lead to the 55-day simple moving average (SMA) at $107.40 being revisited and perhaps also the psychological $100 region.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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