Nvidia (NASDAQ:NVDA) has been on an absolute tear. I was thinking that after its stock split next month, perhaps NVDA stock could get to $200. In the pre-split situation , that’s $800, a mark that the stock just hit at the end of June.
The shares have been on fire, rallying 22% in the past month and 55% in the past three months. The move has sent Nvidia to new all-time highs, as the company sports a market capitalization of roughly $500 billion.
In the wake of the rally, many investors are asking the same question: “Have I missed my chance to profit from NVDA stock?”
Admittedly, investors looking to take a bullish position in Nvidia could have picked many more opportune moments to buy its shares. Last year, I told investors that Nvidia company was a steal below $200. I have recommended the shares several times since that article was released, even though, after the publication of the column, the stock doubled and then tripled.
Now, with NVDA stock up four-fold from its lows, it’s a bit harder to stand on the table and shout the bullish case for NVDA stock.
Nvidia’s Long-Term Outlook Is Still Strong
Simply put, Nvidia will benefit from the long-term progression of technology. As long as cars keep becoming more advanced, consumers continue to play video games, data continues to be generated at an exponential rate and people still want more computing power, demand for Nvidia ‘s products will remain strong.
I think of the tech space in terms of pillars. One pillar is the cloud and datacenters. Another pillar is artificial intelligence and machine learning. Computing power, graphics, autonomous vehicles are also all pillars within the space.
Nvidia is not staked to any one particular pillar. In fact, it’s staked to multiple pillars and in many cases, it’s the leader of sectors.
When I’m discussing Nvidia, I tell investors, “Let’s stop thinking about this quarter. No, let’s stop thinking about this year. Let’s instead think of the next five years. Let’s think of the next decade.” I don’t say that about too many stocks.
That’s the best and most profitable way to think about the company.
Obviously there are pros and cons to owning the stock, particularly after it’s rallied more than 50% in less than 100 days. Its valuation isn’t cheap.
Analysts, however, expect a ridiculous explosion in its revenue growth this year. On average, they expect its top line to soar 49%. If its revenue is in-line with the mean estimate, Nvidia will deliver revenue of $24.8 billion this year.
Analysts’ mean earnings estimate calls for Nvidia’s earnings per share to jump 58% to $15.80. But here’s the “problem,” if we can call it that. In the past, the analysts’ average estimates for Nvidia haven’t been close to being correct.
Just six months ago, the mean revenue estimate was roughly $17.5 billion. That was almost $8 billion below the current average outlook. A year ago, the mean estimate was less than $15 billion…$10 billion below the current outlook! The mean earnings estimate has almost doubled over the last year.
Nvidia has been blowing it out of the water and embarrassing the analysts, and I haven’t stopped harping about that. Wall Street may be shortchanging Nvidia again. The average estimates were also too conservative for the chip maker’s most recent reported quarter.
Breaking Down NVDA Stock
I love this company’s long-term outlook, and I think that its market capitalization will climb to $1 trillion.
Not long ago, reaching that level would have resulted in a gigantic gain. However, now Nvidia’s market capitalization will reach $1 trillion if it “only” doubles. I don’t know how long it will take the shares to achieve that milestone, but I’m confident that they will do so.
But we also have to be aware of the technical aspects of the stock. The shares have been on a mega run. While I’m not someone who bets against trends, it’s reasonable to understand how the shares’ risk/reward ratio has shifted as a results of the rally.
When it comes to NVDA stock, I advocate buying the dips and/or dollar cost averaging (DCA). If you’re not good at timing individual stocks, the latter approach is probably best. Those who have had success timing the market can try buying the shares on weakness or utilizing both approaches.
On the weekly chart above, notice how NVDA stock peaked in early September and then traded sideways for several quarters. This long consolidation phase is what’s given the stock enough energy to rally so sharply.
Keep in mind that NVDA stock will undergo a 4-for-1 stock split on July 20.
If its momentum continues, I could see a push up toward the $825 to $860 area. At that level, some of Nvidia’s key extensions come into play. On the downside, I expect the 10-week moving average to hold as support. Dips to that point would provide investors with buying opportunities, in my opinion.
A Side Note
As a side note, analysts have been extremely conservative on Advanced Micro Devices (NASDAQ:AMD) as well. Like Nvidia, AMD stock has been consolidating for several quarters. But unlike Nvidia, AMD hasn’t yet broken out and reached new all-time highs.
As with Nvidia, AMD is benefiting from advances in technology, and its shares should move higher at some point. For those who missed the move by NVDA stock, AMD could offer a good opportunity.
On the date of publication, Bret Kenwell held a long position in NVDA and AMD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.