Nvidia Stock Is Up More Than 50% So Far This Quarter: What To Expect Next?

Semiconductor giant, Nvidia NVDA, has shot up by more than 50% - from $200 to over $340 – since early October. This latest run is the most impressive yet by a stock that has been making record high after record high since 2015. Nvidia stock is up over 150% year-to-date, and up over 460% just since early 2020. A look at the monthly chart reveals the full extent of the semiconductor boom.

Nvidia is far and away the largest semiconductor company in the world. With a current market capitalization of $785 billion, it is quickly approaching the rare air of companies with a valuation of over $1 trillion, shared only by Alphabet GOOG, Amazon AMZN, Apple AAPL, Microsoft MSFT, and Tesla TSLA. Its market cap is now about four times that of Intel (INTC).

The Reasons for Nvidia’s Surge – Supply Chain Shortages and Earnings Report

There are both general and specific factors that sparked and have driven Nvidia’s latest spectacular price surge. A primary general factor is the increasing realization that the supply chain shortage is for real, and likely to persist. In a recent CNBC interview, Tom Caulfield, CEO of GlobalFoundries GFS, stated that the computer chip shortage could last past 2030. That means higher demand and increased pricing power for Nvidia products.

The increased mainstreaming of cryptocurrencies has also been a boon for Nvidia, with its mining processor that enables crypto miners to operate more efficiently.

Nvidia also stands to profit hugely from President Biden’s proposed infrastructure bill that would allocate hundreds of billions to A.I. technology.

Specific factors driving Nvidia’s stock price surge include the forward look presented at the company’s November 9th annual GPU Tech Conference. Following remarks by Nvidia’s CEO, Jensen Huang, many market analysts revised target prices for the stock from around to $250 to $350. (Current average analyst estimate: >$350.)

Nvidia’s 3rd quarter earnings report was nothing short of spectacular, continuing the company’s record of beating analyst estimates for the last 16 quarters. Here are just a few of the highlights:

• EPS $1.17 (vs $1.11 expected)
• Record revenue increase of $7.1 billion, up 50% year-over-year
• Gross margin 67%, up 150 basis points year-over-year
• Net income up 62% year-over-year
• Net cash $7.6 billion

Nvidia - What’s Ahead

The skies look rosy for Nvidia, which projects that its 4th quarter earnings will outdo even the impressive 3rd quarter numbers.

The company is prime position to benefit from market trends such as cloud computing – for which Nvidia GPUs are essential, robotics, and virtual reality platforms like its recently developed Omniverse – from which the company expects to realize monetization of $1,000 annually per user.

Nvidia enjoys a huge competitive “moat” because the products it supplies are both extremely expensive and extremely difficult to make. Even giants such as Amazon opt to buy them from Nvidia rather than spending the money to make their own.

The Bottom Line

The only cautionary note regarding Nvidia stock is a short-term technical analysis one: the stock is massively above its 50-day moving average, which lies all the way back down at $256 on the daily and at $190 on the weekly time frame. Therefore, some near term corrective retracement wouldn’t be a surprise.

In the long run, Nvidia is a strong growth company that is likely to continue to outperform. It is at the forefront of all the right businesses – artificial intelligence, cloud computing, electric and self-driving vehicles, and gaming - at just the right time. It enjoys huge market shares and outstanding profit margins, and has plenty of cash to fund future growth.

Alexander Voigt is the Chief Executive Officer and founder of daytradingz.com. He does not hold any positions in the mentioned stocks.