Going Long Nvidia Still Makes Sense: Here’s Why

Key Points

• Nvidia is a crowded trade and is set up for consolidation/correction, but it still makes sense to be long. 
• Market sentiment, including retail traders, analysts, and institutions, is robust and driving the market to new highs. 
• Traders are selling the news following the GTC developer conference, but a buy-the-dip opportunity is unfolding. 

Going long NVIDIA NASDAQ: NVDA stock still makes sense because the multi-trillion dollar AI opportunity has yet to play out, and Nvidia is the dominating source. Its chipsets, GPUs, and accelerators are only the tip of an iceberg that includes a full stack of services. Nvidia has evolved from a mere chipmaker into a technology powerhouse that will drive change over the next decade. 

To put this opportunity into perspective, the AI market is expected to grow by 9X over the next six years to nearly $2 trillion. Because Nvidia already commands about 80% of the market, is advancing technology today, and is raising prices, it should continue to grow and outperform expectations for the foreseeable future.

Nvidia Advancing AI and Expanding Partnerships

The two primary takeaways from the Nvidia GTC Developer Conference are that this company is advancing AI and expanding its partnerships, cementing its position as a full-stack AI provider. Among the new or expanded partnerships is work with Spire Global NYSE: SPIR to advance AI-enhanced weather prediction and advances in medicine and transportation. The company says several med techs use AI to improve drug discovery while transportation companies apply it to fleet management. 

The advance to AI is called Blackwell. Named for a famed mathematician, Blackwell is a new GPU platform with significantly greater speed, processing power, and efficiency compared to the prior system called Hopper. The new platform features 208 transistors and 192 GB of HBM3E memory. Companies planning to use the new chips include Amazon's NASDAQ: AMZN AWS, Google’s NASDAQ: GOOG cloud, Oracle’s NYSE: ORCL Gen 2 data centers, and Microsoft NASDAQ: MSFT for Azure. 

Supply has been a concern for NVIDIA and AI because demand has exceeded it since last year. However, numerous chipmakers, including Micron NASDAQ: MU, SK Hynix, Taiwan Semiconductor NYSE: TSM, and Samsung OTCMKTS: SSNLF, are expanding their production to match. Samsung, SK Hynix, and Micron are leaning hard into HBM3E memory chip production, while TSM is working on cuLithogrography, a manufacturing process that will speed up chip production while improving quality. 

Nvidia’s Market Sentiment is Robustly Bullish

Market sentiment is among the drivers for the stock. Nvidia’s rise to stardom was quick and still unfolding, attracting new and old money alike. Regarding the stock’s standing on Marketbeat’s platform, it is a Most Followed, Top Rated, Most Upgraded and Searched name. Analysts rate it as a Moderate Buy and continue to lead the market higher. 

The consensus target lags the market, but sixteen of the thirty-odd analysis revisions tracked by Marketbeat issued this year forecast that this stock will trade well above the consensus target. The range of fresh targets ranges from the low $800s up to $1200, implying a 35% upside. Institutional holdings are also robust, with institutions buying on balance for six consecutive quarters and activity ramping in Q1 2024. 

The Technical Outlook for Nvidia: Sell the News, Buy the Dip 

The price action in Nvidia is moving lower following the GTC Conference, which suggests that a sell-the-news event is in progress. However, as expected as the news is, the company is set up to continue accelerating business soon, suggesting a buy-the-dip opportunity is also unfolding. In this scenario, the market could retreat to $825 or lower before rebounding, but a rebound is expected. Assuming the market for NVIDIA finds support at or above the 30-day EMA, it should rebound and set a new high by June.

If not, Nvidia may not reach a new high until the 2nd half of 2024. Nvidia's stock comes with a high valuation, which may lead the market to a wait-and-see mode. However, the outlook for growth puts the valuation back into reasonable territory for blue chip tech as soon as next year, so the market may not have to wait long. The next earnings report is due in late May, when revenue reported revenue is expected to grow 240%.