The bullish investing thesis on Nvidia (NASDAQ:NVDA), the current leader in GPUs, is pretty clear. GPUs work better than CPUs for artificial intelligence applications and as a result, the chip maker — and NVDA stock — seem well positioned in a market with what is essentially huge growth potential.
Due to its exposure to AI, NVDA stock will benefit from numerous secular growth trends in autonomous driving, big data, medical diagnostics, and more that could help lift sales and profits rise over time.
The bearish thesis is also clear. Due to the importance of artificial intelligence, Nvidia will have a lot of competition in the future and the company might not keep its leading position for very long. To get a leg up and save money, big tech companies with immense resources such as Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), and Facebook (NASDAQ:FB) are each developing their own specialized AI chips. Innovative companies like Tesla (NASDAQ:TSLA) aren’t too far behind, with Musk’s company having unveiled an AI chip that can help make Tesla more autonomous this year. Long term, China also wants to eventually make its own version of Nvidia.
To keep its leading market share and meet bullish expectations, Nvidia will need to innovate and make better products than anyone else. Due to the uncertainty of how those products will be received, Nvidia stock has been subject to sentiment shifts. As a result of the shifts, the NVDA stock price has fallen from its late 2018 highs but is still up 23% year to date. Given the rally in 2019, is the stock a good buy now?
Wall Street is Bullish on NVDA
In terms of Wall Street analysts opinions, Nvidia is pretty attractive. Analyst Harsh Kumar of Piper Jaffray has a $200 target price based on encouraging results from his research into gaming trends and gamer demand. According to Kumar’s survey of gamers, more than 70% of respondents said they would either maintain or increase GPU spending patterns. Analysts at Cascend Securities have a $190 price target, noting that Nvidia is holding onto its market share despite Advanced Micro Devices’ (NASDAQ:AMD) strong Navi AMD GPU release.
What Some on the Sidelines Seek
Meanwhile on the sidelines, many chartists will say that the Nvidia stock price needs to close above the 200-day exponential moving average of around $174.64 with a meaningful catalyst to be attractive. So far Nvidia shares have consolidated below the 200-day mark since last October and the consolidation has caused the exponential average to act as resistance.
Many traders don’t play consolidations because a stock could take a very long time to consolidate. Because time is money, some traders wait until the stock has broken out with some sort of meaningful positive catalyst before buying. Even though they pay a higher price, it is in their mind safer due to momentum.
In terms of catalysts, one to look for is AMD’s earnings report on July 24. If conference call commentary indicates strong demand for GPUs in general, Nvidia could potentially benefit as it is currently the leader and its shares could head higher. If commentary indicates that AMD is gaining market share at the expense of Nvidia, shares could head lower.
Another potential catalyst is any news of the trade war ending. If the trade war ends, the semiconductor sector could surge higher due to stronger sentiment and NVDA stock could rise with it. Lastly, Nvidia’s earnings report next month could be a potential catalyst if the company beats expectations.
Bottom Line on Nvidia Stock
Nvidia stock has considerable long-term upside if management executes and the company keeps making industry leading semiconductor chips for AI applications. In the near term, I believe some money on the sidelines could move into NVDA stock if it closes above the 200-day exponential moving average with a meaningful positive catalyst event.
As of this writing, Jay Yao did not hold a position in any of the aforementioned securities.
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