NVIDIA, a leading beneficiary of artificial intelligence technologies, recently reported its financial results on May 22nd. Since then, the stock has experienced a significant surge of about 20% in just three trading days. Year to date, NVIDIA’s shares have more than doubled, showing an impressive gain of approximately 120%. The company’s market capitalization now stands at a staggering $2.8 trillion, placing it just below Apple ($2.9 trillion) and Microsoft ($3.2 trillion) in the S & P 500 index. Some market observers have pointed out that NVIDIA’s market value now exceeds that of Amazon, Walmart, and Netflix combined.
Despite NVIDIA’s remarkable performance in the market, many investors are starting to question whether the stock is overvalued. As the broader market faces pressure from rising Treasury yields, there is a growing sentiment among investors that it may be time to start taking profits. NVIDIA’s stock price has surged above its 50-day and 200-day moving averages, and it currently boasts a price-to-earnings (P/E) ratio of 66. The CEO of Ritholtz Wealth Management, Josh Brown, raised doubts about NVIDIA’s meteoric rise, questioning whether a company producing graphics processing units should surpass giants like Apple and Microsoft in market capitalization.
Market experts warn that any sign of a threat to NVIDIA’s earnings growth expectations for 2024 could lead to a significant correction in the stock price. BTIG’s Jonathan Krinsky advised investors to watch for a potential pullback to the previous breakout point between $975 to $1,000, which could represent a 12% to 14% decline from the current price levels. Despite the upward trend in the stock, Krinsky pointed out that NVIDIA’s recent surge above its upper Bollinger Band could indicate emotional buying, potentially leading to a market top.
Using technical indicators, analysts like Rob Ginsberg from Wolfe Research have noted that NVIDIA’s stock price has come close to a measured move on a breakout of $1,150 but has not yet reached that level. The stock’s dominance within the indices, combined with its overbought condition and general euphoria in the market, may signal a good opportunity to take some profits. The Bollinger Band, a technical tool that measures a stock’s volatility, suggests that NVIDIA’s stock may be overbought, leading to a potential correction in the near future.
As concerns about NVIDIA’s valuation and potential correction grow among market watchers, investors are advised to carefully monitor the stock’s movements and consider trimming their positions to lock in profits. While NVIDIA’s success in the artificial intelligence space has been remarkable, the rapid surge in its stock price raises questions about sustainability and potential downside risks. It remains to be seen whether NVIDIA can maintain its current trajectory or if a correction is imminent in the near future.
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