Global Courant 2023-05-31 22:40:34
Nvidia shares are in a crack this year as the chipmaker asserts its dominance and asserts itself as the one to beat in the artificial intelligence arms race. But don’t be surprised if Nvidia returns some of its profits in the short term. Shares are up more than 167% in 2023 and are up double digits since Wednesday’s close, when the blowout report revealed strong and sustained AI tailwinds. During Thursday’s session alone, shares were up more than 24% on the news. Earnings surged Friday and Tuesday to push the stock short into the $1 trillion market cap club. NVDA YTD Mountain Nvidia Shares in 2023 Wall Street analysts and investors remain confident in the stock’s long-term trajectory, but say the latest sweeping rise puts Nvidia on track for a near-term pullback. “If any stock deserves the big run, it’s Nvidia because earnings are now so much faster and stronger than we originally thought,” said Paul Meeks, portfolio manager at Independent Solutions Wealth Management. It’s “definitely overbought. I certainly wouldn’t buy it fresh here, but I certainly don’t sell it in strength either. I’m just holding it.” Overbought Conditions and a Short-Term Pullback Despite Nvidia’s stunning results, most short-term momentum indicators show that the stock is overbought. That includes the relative strength index, a momentum indicator that measures the speed and magnitude of a change in the security price, said Ari Wald, a technical analyst at Oppenheimer. This creates a “reasonable” setup for consolidation. Still, Wald suggests investors consider buying in a pullback and using market dips to sell relatively weaker positions and buy Nvidia. Price momentum remains strong and could break the $600 Street-high price target in the near future, he added. Janney Montgomery Scott, technical strategist Dan Wantrobski, points to market breadth and lack of broad participation as reasons for a likely short-term dip. Most of the market’s gains this year have been tied to AI, with only three sectors in positive territory for the year. “This meager leadership can’t last forever, it can’t last forever,” he said. “At some point — I think it will be relatively soon — Nvidia will fall under profit-taking.” That consolidation and profit-taking could come as early as next week, he said. Like many Wall Street strategists, Fairlead Strategies’ Katie Stockton sees the long-term setup for Nvidia as attractive, though the near-term risk/reward seems unfavorable from a technical perspective. She continues to track key resistance and support levels, highlighting about $366 — the day’s low pressure in the session following Nvidia’s earnings release — as one of those to watch. Consolidation in megacaps Nvidia isn’t the only technology giant Wall Street cooling off in the near term. Technology stocks are crushing so far in 2023 after a disappointing 2022, with $1 trillion club members Amazon, Alphabet, Apple and Microsoft up at least 37% year to date. The sector got a boost this year as bond yields fell, AI kicked in the back and investors hoped for a tide change from the Federal Reserve. Wall Street estimates call for a 1.3% increase for Apple from Tuesday’s close, while consensus estimates project a small 3.7% increase for Microsoft. Elsewhere, popular valuation metrics such as price-to-earnings ratios show that many of these names trade at high premiums to the S&P 500 on a trailing basis. The benchmark index’s P/E is around 21 times, while those of Apple, Microsoft and Amazon hover around 30, 36 and 295 respectively. Price-to-sales ratios, a measure of market capitalization and sales to value a stock, also remain high. A higher P/S often indicates that a stock may be overvalued. Nvidia and Microsoft’s P/S ratios are 19 and 10, respectively. While many of these stocks could rise in the short term or hold on to recent gains, investors may want to brace for consolidation across the board, Meeks said. “The last time we had a growth versus value outperformance like that was a really scary time because it was right before the dot-com bubble burst,” he said. “I hope that doesn’t happen this time. I don’t think it will. But it worries me a bit.” — CNBC’s Michael Bloom contributed reporting
