Is NVIDIA Stock a Buy Ahead of Earnings?

Key Points

• NVIDIA is still down from its highs but shows a strong buy signal ahead of earnings.
• Analysts continue to raise their estimates and price targets, leading the market to a new high. 
• Earnings are scheduled for release in late August; investors should expect to see volatility before then. 

NVIDIA NASDAQ: NVDA is still down about 17% from its recent split-adjusted highs, but the strong 25% rebound suggests it is a buy going into earnings. The question is whether the stock price will continue to increase going into the report or if there will be another chance to buy this dip. The odds are high that there will be another chance to buy this dip at a lower price because there is ample risk in the market. The earnings report is scheduled for the end of August, leaving plenty of time for news relating to geopolitics, national politics, inflation data, and the outlook for recession to impact the price. 

There is a High Bar for NVIDIA to Beat

NVIDIA is being driven higher by analysts who continue increasing their revenue and earnings growth estimates. The latest read has 38 of the 40 revisions to Q2 revenue and earnings up in the last 90 days. That’s 95% of the analysts and shows a high conviction in the figure; the whisper numbers are much higher. As it is, the consensus is forecasting 9.6% sequential revenue growth and another 112% YoY gain. That is on top of last year’s 101% increase and likely a low target given the trends. NVIDIA has beaten estimates 100% of the time for the previous two years, and demand for AI infrastructure remains robust. 

The earnings growth outlook is equally robust. The consensus figures forecast a 5% sequential gain and 137% YoY increase, which is likely a low-ball estimate. The pace of earnings outperformance has slowed over the last four quarters from 17% above consensus to 9% in the last report but remains solid and is unlikely to be broken this quarter. However, sequential growth is also slowing and may provide a headwind for the market and a bearish catalyst should the results fail to impress. 

Analysts Say NVIDIA Can Set a New All-Time High 

The pace of upward analyst price target revisions has slowed over the last month, but the sentiment and price target trend are bullish and driving the market. The consensus sentiment rating reported by MarketBeat has been Moderate Buy for more than a year and firmed to nearly a Buy in recent months. The consensus price target is up more than 200% in the last year, suggesting a 15% upside from current levels and a new all-time high when reached. 

The range of targets is still pretty wide, but most are above the consensus figure, in the range of $150 to $200, suggesting that a 30% to 75% upside lies ahead. Due to the high number of analysts and increasing coverage, investors can assume a reasonable conviction in the rating and price target despite the wide range. NVIDIA has more than forty analysts covering it, up nearly 15% since last year and 32% in the last two years. 

Recent chatter includes a warning from Bank of America NYSE: BAC that volatility could persist in the chip sector through September. Not only is there some uncertainty surrounding NVDA earnings results, but late summer and September, in particular, are historically bad times for the sector. Analysts at BAC went on to say that the semiconductor sector is in only the fourth quarter of what is expected to be a ten-quarter or longer upcycle with ample room left for the Semiconductor Index NASDAQ: SOXX to run. NVIDIA is 10% of the index. 

NVIDIA Fires a Trend-Following Signal

The market for NVIDIA stock is trending higher and in the middle of a strong trend-following signal. The chart shows solid support at a critical moving average, resulting in a strong rebound. The market could continue higher, but a V-shaped recovery is unlikely. The most likely scenario is that this market will consolidate at or near the current levels, resulting in a retest of support and a stronger signal in the indicators. The stochastic and MACD indicators are set up to confirm the signal in the price action but have yet to do so. Stochastic shows only a weak signal that MACD has not yet confirmed. The strong signal will include upward price movement, crossovers in both indicators, and a much stronger signal in the stochastic.