Nvidia (NASDAQ:NVDA) stock has performed very well since the beginning of June, and as the chart below shows, shares of NVDA are up nearly 12% since then.
Compare the gain in Nvidia’s share price to the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH), which is up just 6.8%. But considering this quick run-up in Nvidia’s stock, it would be wise to wait for a pullback before jumping in for the long haul.
Bad News Is Priced In
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Source: Yahoo Finance
Much of the bad news for Nvidia has already been priced in by the market. During their most recent earnings report on May 16, Nvidia’s management did not give an outlook for the remainder of the year.
However, they warned about continued softness in Nvidia’s datacenter segment and issues with a CPU shortage in the gaming segment.
When those issues are combined with the well-known issue of continued revenue declines from cryptocurrency miners, it appears any bad news is already known by the market.
“The data center spending pause around the world will likely persist in the second quarter and visibility remains low,” said Colette Kress, EVP & CFO on NVDA’s Q1 2019 earnings call. “In gaming, the CPU shortage while improving will affect the initial round of our laptop business.”
Pending Acquisition of Mellanox Technologies
One of the potential catalysts for Nvidia to drive growth is the pending acquisition of Mellanox Technologies (NASDAQ:MLNX), which is expected to close by the end of the year. The deal is important for Nvidia, because it provides growth at a time when growth has been lagging.
During the Q1 earnings press release, the company noted that the deal would be immediately accretive upon closing. The one wildcard for this deal being finalized is the fact that it needs approval from China.
Therefore, if there are continued trade tensions with China, the completion of the deal could be delayed or rejected. That is something investors should consider in their decision making process.
“Once complete, the combination is expected to be immediately accretive to Nvidia’s non-GAAP gross margin, non-GAAP earnings per share, and free cash flow. The transaction is expected to close by the end of the calendar year.”
Appealing Long-Term Technical Outlook
Many investors will look at technical analysis as part of their decision process when determining to buy a stock, however many investors usually focus on short-term timeframes. When looking at short-term timeframes, shares of Nvidia are overbought, which is why some caution should be exercised.
For stocks that I am considering holding for an extended period of time, I like to look at the long-term technical outlook, which means looking at a weekly or monthly chart versus the standard daily charts that many investors look at.
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The adjacent chart paints a bullish picture for the technical outlook for Nvidia. The RSI on the weekly chart is still below 50 and both lines of the MACD are still below zero. Given these data points, I expect shares of Nvidia will retest the $200 level sometime this year.
Bottom Line on NVDA
In closing, I believe Nvidia is a quality company at the intersection of a number of important trends, ranging from the data center to autonomous driving. If the pending acquisition of Mellanox Technologies is approved, it will provide an additional avenue of growth in the future.
Since the bad news is known by the market, and considering Nvidia’s future growth prospects, it makes sense to be on the lookout for a quality opportunity to enter NVDA for the long-term.
The time to enter is not at this moment in time, given the short-term overbought conditions that are present. Once the short-term overbought conditions subside, there should be an opportunity in the near future to be able to enter for the long-term.
As of this writing, Brad Kenagy does not hold a position in any of the aforementioned securities.
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