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Nasdaq 100: Nvidia share price – where to next?

Fundamental outlook and technical analysis on the Nvidia share price.

Nvidia CEO in front of logo Source: Bloomberg

Nvidia soars to new record high

It has been a remarkable eighteen months for NVIDIA Corp (All Sessions). The stock shed 68% from its record high at the end of 2021 to the trough in October 2022. Since that low it has gained 250%.

The surge in demand for chips designed for artificial intelligence (AI) servers has been behind the last bounce in its stock price, though it had been rallying hard since October last year in common with many tech stocks. The period from October 2022 onwards saw a peak in recession fears and worries about declines in earnings, neither of which has yet to come to pass.

With so much bad news baked into the share price, there was plenty of room for Nvidia to outperform forecasts, which it duly has. The question for investors now is whether these gains can be sustained and whether Nvidia can live up to the undeniable hype surrounding AI.

AI chip shipments are forecast to increase next year and beyond, and Nvidia has a commanding market share in these of around 60%. Crucially, gaming revenue has begun to pick up as well, providing a boost for the business in its other division.

But just as Nvidia benefited from the lack of good news last year, now it faces an uphill struggle. Investors expect great things from the company in coming quarters, but at current multiples Nvidia trades at 84 times forward earnings. That is an awful lot of good news in the share price, and it seems reasonable to expect the company will face some hiccups along the way.

How to trade Nvidia

Refinitiv data shows a consensus analyst rating of ‘buy’ for Nvidia – 15 strong buy, 25 buy and 9 hold - with the median of estimates suggesting a long-term price target of $460.00 for the share, roughly 53% higher than the price target in mid-May and 17% higher than the current price (as of 05 June 2023).

Refintiv analyst recommendations Source: Refinitiv

IG sentiment data shows that 56% of clients with open positions on the share (as of 05 June 2023) expect the price to fall over the near term, while 44% of clients expect the price to rise whereas trading activity over this week showed 59% of buys and this month 51% of buys.

IG client sentiment Source: IG

Nvidia – technical view

The Nvidia share price has risen by an impressive 172% year-to-date, and by nearly 40% since its 25 May Q1 results, to last week’s all-time record high at $419.38.

According to the 9-Day Relative Strength Index (RSI), the share price is currently as overbought as it had been in early November 2021.

Back then it corrected lower for a week before making its then all-time high at $346.47, only to slide from then on to its $108.13 October 2022 trough.

Nvidia Weekly Chart

Nvidia Weekly Chart Source: Tradingview
Nvidia Weekly Chart Source: Tradingview

Given the huge Q1 earnings price gap of around $60 for the Nvidia share price, and the current overbought conditions, it wouldn’t be a surprise if this gap were to at least partially get filled over the summer months.

Having said that, just as in November 2021, an overbought RSI per se, doesn’t mean that the share has reached a top yet, especially since no negative divergence can be spotted on the oscillator.

Two scenarios

This gives us, as always, two scenarios: one is for the continuation to the strong uptrend and the other for a retracement lower which is likely to at least partially fill the May price gap.

The first, bullish, scenario will remain valid as long as no short-term bearish reversal takes the Nvidia share price to below last Wednesday’s $378.22 low and makes it close below that level on a daily chart closing basis.

Nvidia Daily Chart

Nvidia Daily Chart Source: Tradingview
Nvidia Daily Chart Source: Tradingview

Even if such a fall were to occur, the short-term trend would likely only lead to retracement lower as in scenario two.

Provided that the May 24 low at $298.06 isn’t being slipped through, the medium-term uptrend would remain bullish, despite the short-term correction.

Therefore, unless short traders use a tight stop, are nimble and cash in their profits within a few days and at most weeks, it would probably make more sense to go long the stock at lower levels, instead of trying to fight the strong uptrend.

A rise above last week’s record high at $419.38 would put the $450 region on the cards, ahead of the psychological $500 mark.

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