Nvidia (NASDAQ: NVDA) On The Verge Of A Major Breakout

A 6% jump in Monday’s session was enough to make shares of chipmaker Nvidia (NASDAQ: NVDA) among the best performing of US equities on the day. In what was a great start to the week for markets overall with the major indices all setting fresh all-time highs, Nvidia’s stock came within a few bucks of retaking its own all-time high which has been dogging it since last year.

While shares are still up more than 300% in the past two years, they’ve been range-bound since Q3. It’s not unreasonable for Wall Street to ask if they’ve been taking a well-deserved breather before the next leg up, or if we’re starting to see the momentum swing against them.

At the close of last week, shares were essentially flat since the middle of October, while the tech-heavy Nasdaq index had notched more than a 16% return over the same period. This kind of underperformance can be frustrating for investors but isn’t that unusual at all. During periods of outperformance, the gap widens considerably before we get these cooling-off periods. This is where gains are consolidated and investors wait for the fundamentals to catch up so the next leg of the rally can begin. In answer to Wall Street’s question, based on Monday’s jump it’s starting to look like that’s what’s happening now.

Bitcoin As The Catalyst

The catalyst this time, Bitcoin, might come as a surprise to some. The best-known cryptocurrency has been back in the headlines in recent weeks as it sets price records of its own. Elon Musk’s announcement yesterday that Tesla (NASDAQ: TSLA) has invested $1.5 billion into Bitcoin and will be accepting it as payment going forward has only added to the hype. Similar to the electric vehicle space, it doesn’t take much to ignite shares that are in any way related. So the news yesterday that Chinese crypto miners are dealing with a shortage of Nvidia's GeForce RTX 30 desktop graphics cards by turning to GeForce RTX 30-powered laptops only served to set the cat amongst the pigeons.

Even though Nvidia’s CEO Jensen Huang has said in the past that cryptocurrency “is not our business”, this fresh and surprising demand could be the push that Nvidia shares needed to break out of their multi-month range.

They closed Monday’s session at their highest level since November with the higher lows they’ve been setting since September helping to underpin the move. It means we’re now looking at a very attractive technical set up, with a tightening pennant forming quickly. September’s and November’s prints in the high $580s make for a perfect near term target for investors to aim for with this month’s Q4 earnings providing a textbook catalyst for shares to run up into.

Looking Ahead

Q3’s topline number was 57% higher year on year but considering how shares have traded sideways since, there’s a ton of potential for hype to start flowing in again now. Citi added the stock to its Catalyst watch list last month and are bullish on the company’s prospects for 2021.

In a note at the time they said; "we expect hyperscale-led data center demand recovery in 1H21 and sustained PC gaming demand despite tight supply to drive upside to near-term Street estimates. Our Jan/Apr-Q EPS estimates are 2% / 5% above Street."

With the bears having been unable to take the stock down in recent months despite their best efforts, the fresh fundamental and technical factors that are starting to align make for a strong bull case in the short and medium-term.