Nvidia stock gives investors a heads you win now, tails you win later dynamic
One of the more closely watched earnings report this week will come from Nvidia (NASDAQ: NVDA) after the market closes on November 17. Forecasts call for the chipmaker to deliver earnings per share (EPS) of $1.11 on revenue of $6.83 billion. Both numbers would be significant year-over-year gains from 2020 when the company posted EPS of 73 cents on revenue of $4.73 billion.
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But there are many analysts that suggest NVDA stock could take a significant dip if the company doesn’t come in well above these already lofty expectations. That’s because the stock is up 37% in the 30 days prior to the earnings report. And with the stock’s relative strength indicator at over 73 as of this writing, there could be reason to believe the narrative that Nvidia is overvalued.
However, there’s also an argument to be made that NVDA stock will present investors with a compelling buy-the-dip opportunity if there is some profit-taking after earnings. Read more to find out why we believe Nvidia is a buy no matter what the earnings report reveals.
A Major Player in All the Key Sectors
Think about all the sectors that are driving semiconductor growth: cloud computing, artificial intelligence, the internet of things, cryptocurrency mining, gaming, and mobile computing to name a few. Nvidia provides chips for all of these and they are also in prime position to gain as the metaverse begins to take shape.
In fact, many analysts concede that much of the stock’s 37% growth in the last month is due to expectations that it will help supply companies such as Meta Platforms (NASDAQ: FB) with the high-powered processors they will need for the virtual reality tools to populate this digital environment.
The metaverse can’t simply be spoken into existence. As this month’s climate summit proved, there’s still a demand for face-to-face meetings not because people have to, but because they want to. Nevertheless, virtual reality is not going away and Nvidia looks well-positioned to capture that growth.
Gaining Strength in Data Centers
A key sector where Nvidia has been increasing is market share is data centers. As this earnings season is showing, it appears that Nvidia and Advanced Micro Devices (NASDAQ: AMD) continue to take market share from Intel (NASDAQ: INTC).
Revenue from data centers has exceeded $2 billion in each of the last two quarters. According to Matthew Ramsay, an analyst with Cowen, that “validates momentum we see carrying forward not just through C2021 but beyond, as Nvidia remains the thought leader in artificial intelligence.”
Heads You Win, Tails You Still Win
If Nvidia posts stronger than expected earnings, NVDA stock will move higher. That’s because the 12-month consensus price target currently has NVDA stock trading 15% lower than its current level. If earnings beat expectations, more upgrades may be in the offing.
But let’s say the company comes in at expectations or just slightly above. This is where investors may see an opportunity to take some gains off the table. However, this is where investors need to look at what the analysts are saying.
In the seven days prior to the earnings report, eight analysts have boosted their price target for NVDA stock. And the one analyst that issued a downgrade raised the stock’s price target to its current level. And even that analyst said it was simply because NVDA stock looked overvalued at its current price.
That would suggest that the only thing that could really slow down Nvidia’s growth is substantially lower guidance.
That seems unlikely, but we’ll have to wait and see. The stock is beginning to pullback in advance of earnings. And a current bull flat pattern suggests that investors are looking to give the stock room to head higher.
NVIDIA is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.