Nvidia (NVDA) stock closed Wednesday’s shortened session higher. Shares of the artificial intelligence company had shown signs of topping but appears to be getting back on its feet. Is Nvidia stock a buy now?
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The leading AI stock shot up around 4.5% in light volume on Wednesday, and bounced off its 21-day exponential moving average. The stock had been trading tightly for several days, calming down after its June 20-24 tumble, its worst three-day rout since December 2022. It lost $430 billion in market cap over the three day sell-off, the most ever in its history.
A shadow cast on Nvidia stock on Tuesday after strategist Ed Yardeni warned that AI stocks are getting into bubble territory.
“While we love the productivity-enhancing possibilities that artificial intelligence offers, the AI phenomenon has many of the hallmarks of an inflating bubble,” said Yardeni in a note to clients. He believes the AI leaders, including Nvidia CEO Jensen Huang, are overpromoting the technology, helping push AI stocks to highs.
In separate news, Ken Laudan, portfolio manager at Buffalo Funds, voiced skepticism on the speed of AI infrastructure buildout and is trimming AI holdings in his Buffalo Large Cap Fund.
“I am growing concerned that the handoff from AI enablers to adopters will take much longer than I had previously anticipated,” he told MarketWatch. Laudan describes AI enablers as companies supplying the hardware and AI adopters as software companies that sell large-language AI models in addition to enterprise software to clients.
Nvidia is arguably the leader of the AI investment theme. After establishing itself as a premier designer of chips for high-performance computer graphics, the company’s technology became a go-to source of chips for the massive computing needs of artificial intelligence applications.
Nvidia Pulls Back To Support Line
The IBD 50 and Big Cap 20 stock lost around 16% in the three day sell-off. Nvidia stock bounced off support at its 21-day exponential moving average Wednesday. The stock is currently well above its 50-day moving average.
It is still the No. 1 stock out of 39 in IBD’s fabless semiconductor industry group, which rose to the No. 1 spot out of the 197 IBD groups. Nvidia still boasts 99 IBD Composite and Earnings Per Share Ratings.
Nvidia broke out of a second-stage cup-with-handle base with a 92.22 buy point on May 15. On May 23, the stock jumped to new highs after the company crushed fiscal first-quarter estimates. The AI stock shot up and by late May had reached a 20% gain from the lower entry. This justified taking at least some profits, but Nvidia kept charging higher.
One of the first signs that Nvidia was topping came June 6 to 18. Volume started drying up during that period as the stock climbed to new levels. That’s a sign that buying was starting to dry up.
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Nvidia stock reached an all-time high the morning of June 20, before profit-takers took over and the stock reversed sharply lower. Shares closed 3.5% lower, then lost another 3.2% the following day. The sell-off came in higher-than-average volume.
Still, Nvidia stock has a big cushion from the 92.22 and 97.40 buy points.
Profit Estimates Robust But Fading
The AI company has shown triple-digit profit and sales growth over the last four quarters. Nvidia blew past fiscal first-quarter profit and sales estimates on May 22. Its quarterly adjusted earnings-per-share grew 461% over the prior year’s period. Revenue grew 262% to $26 billion. It reported record quarterly data center revenue of $22.6 billion, an increase of 427% year over year.
“AI will bring significant productivity gains to nearly every industry and help companies be more cost- and energy-efficient, while expanding revenue opportunities,” said Jensen Huang, founder and CEO of Nvidia, in the earnings release.
Nvidia had a 10-for-1 stock split, effective June 7. Shares had topped the psychological 1,000 level prior to the split.
Nvidia’s profit growth can’t keep up the torrid pace forever. The consensus estimate for the current quarter is for 136% growth, then dropping off to 74% and 49% the following two quarters, according to MarketSurge.
Earnings for the fiscal year that ended in January grew 294%. FactSet estimates call for fiscal 2025 EPS of $2.70, for a 108% year over year increase. For the next fiscal year, estimates show earnings growth tempering to 34% to $3.62 per share.
Is Nvidia Stock A Buy?
The stock is trying to recover from the three-day tumble. Shares remain extended from its latest buy points and are not in a buyable pattern, according to IBD MarketSurge.
In 2023, the AI stock had a huge 239% run and it’s up around 158% so far this year, even after the recent drop.
It’s best now to wait for selling to subside and another base to form or follow-on buy point to present itself to buy the AI chip stock. Therefore, it is not a buy right now.
Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.
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