Why You Should Consider Buying Nvidia Ahead Of Earnings

Key Points

• Demand for shares has been heating up.
• The company has emerged as an early leader in the AI battle. 
• Next week's earnings are likely to hold a considerable upside surprise. 

And just like that, shares of Nvidia Corporation NASDAQ: NVDA are back to within a good day's worth of trading from all-time highs. About 10% to be exact, a gap which we expect to continue narrowing in the sessions ahead. The past week alone has seen them jump 12%, including a 5% move yesterday, as the company's strong position in the burgeoning AI battle has become clear. 

The Santa Clara headquartered semiconductor maker is due to report earnings next week, and Wall Street will be waiting with bated breath. It's a stock that should, at the very least, be on your watchlist because, notwithstanding this week's rally, there are far more reasons to get involved before the release versus waiting to see what the numbers are like. 

It truly is a remarkable turnaround for a stock that had to endure a 70% drop through October of last year. The most optimistic of bulls who were buying in near the lows are already enjoying 200% gains as Nvidia once again trades like it used to back in 2020 and 2021—all the more reason for those of us on the sidelines to be excited.

Peer Comparison

While the broader semiconductor industry has also rebounded since last October, Nvidia has eclipsed the performance of its closest competitors. The VanEck Semiconductor ETF NASDAQ: SMH is up a respectable 55% in that timeframe, while Advanced Micro Devices Inc (NASDAQ: AMD) is up 90%. But Nvidia is almost double this again, with fresh momentum now appearing behind the share price. 

Only three weeks ago, the team over at Erste was upgrading their rating on Nvidia from hold to buy, citing its strength in the data center business. Specifically, they see AI driving sales "sharply" higher, with analyst Hans Engel telling clients that "revenue and profit growth will accelerate significantly in 2024." It was a move that echoed that of HSBC, who also upgraded their rating on Nvidia shares last month on the back of the company's opportunity to become a market leader in AI. Analyst Frank Lee gave Nvidia shares a price target of $355, which would have them trading at fresh all-time highs. 

What was notable about this was that HSBC has long been known as a bear when it comes to Nvidia's prospects, so for them to throw in the towel, the longer-term opportunity must indeed be widening at a rapid pace. Looking ahead to next week's numbers, Vivek Arya from Bank of America expects Nvidia to report "inline/modestly better" numbers, with the real upside surprise being saved for management's forward guidance. Given how well shares have performed this week already, it's clear that investors are buying in on the back of this with a view towards the revisions blowing future forecasted revenue out of the water. 

Getting Involved 

Some concern must be noted given how quickly shares have jumped, and with an RSI of 72, Nvidia is definitely approaching overbought conditions. But that's what happens when there's a paradigm shift in a company's outlook, like there has been with Nvidia in recent weeks. Let's see if the stock can move up through the $320-340 range, as this would set it up for a showdown with 2021's $346 high. Depending on how much of a surprise there is next week, that could quite quickly become a new level of support for the stock versus a target. 

If you're bullish on semiconductors in general and AI at large, then there's a lot to like about Nvidia right now. , you're not getting in on the ground floor of the recovery, but remember, this is a stock that rallied over 1,000% in less than three years. The normal rules don't apply here.