Can NVIDIA Corporation (NVDA) Stock Sustain The Current Momentum?

NVIDIA Corporation stock is up over 12% from its early March lows. Can NVDA stock continue this rally?

Can NVIDIA Corporation (NVDA) Stock Sustain The Current Rally
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Shares of Santa Clara, California-based NVIDIA Corporation (NASDAQ:NVDA) were up 3.19% in the last trading session (March 20), closing the day at a price of $109.45 per share. The strength of NVIDIA's bullish momentum can be gauged from the fact that the 3%+ gains came on a day when the broader market was under pressure as the Nasdaq Composite (INDEX:COMPX) remained flat while the S&P 500 (INDEX:SPAL) was marginally down. In what has been a fairly steady climb, NVDA stock price is up 12% from its intermediate low of $97.67 on March 6. While a part of the rally could have been driven by Intel's acquisition of Mobileye, the question to ask is: 'Should you buy into this NVDA stock rally?' Well, we believe NVIDIA stock has finally broken out of the recent downtrend it was caught in. The stock could march higher, and here is why.

The success of Switch

A lot of negative Wall Street commentary on NVIDIA has focussed on potential weakness in the company's largest revenue segment, its gaming revenue. Well, we didn't buy that narrative as we believed in the longer term potential of NVIDIA stock throughout the recent pullback. We believed that NVIDIA's gaming segment was far from slowing down. And, well, the success of the latest game console from Nintendo Co. (OTC:NTDOY) is a testimony of sorts. 'Switch', the new gaming controller from Nintendo has been receiving solid reviews. The sales have been so strong that Nintendo has decided to double the production of Switch devices in the next fiscal year (starting April 1), from 8M to 16M units. And why could this be good for NVIDIA? That's because NVIDIA provides the graphic processors for Nintendo Switch and higher the number of Switch consoles sold, the greater will be NVIDIA's revenue.

In terms of financial impact, RBC analyst Mitch Steves offered some interesting data points in his latest NVDA commentary. As reported by Investors Business Daily, the RBC analyst wrote, "The Nintendo switch news is a notable positive for Nvidia's gaming business and helps de-risk the stock on a near-term basis." The analyst believes that the incremental sales of 8M units could net NVIDIA an additional $400M in revenue. In other words, the total production target could net NVIDIA's gaming division $800M in incremental revenue. To put things in perspective, that would represent nearly 20% of the 'Gaming' segment revenues over the last twelve months.

NVIDIA is making moves to dominate the Self-driving market

The RBC analyst, Mitch steeves also noted that NVIDIA is a "secular growth story in virtual reality, augmented reality, artificial intelligence and autonomous driving." The Autonomous driving market is expected to swell over the coming quarters. The future importance of this sector can be gauged from the recent MobilEye acquisition, where Intel was ready to pay a 34% premium to get a foot into this rapidly growing industry. As per a Boston Consulting Group study, the autonomous car market is likely to be a $42 billion market by 2025 and will go on to hit $77B in 2035.

As covered in our earlier NVIDIA coverage, we had highlighted how NVIDIA Xavier, the latest System On Chip(SOC) computer for autonomous cars was a big move ahead for NVIDIA and its self-driving partners. Xavier provides a huge boost over its predecessor, Drive PX 2, both in terms of power as well as efficiency. Following the launch of Xavier, NVIDIA has taken multiple follow-up steps to establish itself at the center of the Self-driving revolution. Nvidia recently announced a partnership with Bosch to develop an AI self-driving supercomputer. As per a recent press release, the supercomputer will combine NVIDIA's Drive PX 2 technology and Xavier SoC, and "integrate deep learning software and hardware to enable training of driving complexities, self-driving operation and over-the-air update functionalities." This announcement was followed up by the recent announcement of NVIDIA and Paccar jointly developing a level 4 autonomous truck using NVIDIA's drive PX 2 platform. NVIDIA is actively working with nearly 25 automakers and over 30 autonomous software and technology companies. These efforts will ensure NVIDIA remains a key beneficiary of the rapid growth in the self-driving market. NVIDIA's management believes the Self-driving driving market presents a $6B-$10B opportunity for the company.

NVIDIA Technical Charts Indicate Upside

NVIDIA's fundamentals indicate a solid growth story. The bullish narrative is also reflected in NVIDIA stock technical charts. The 12% rally from its early march lows has seen NVDA stock breakout over its 20-day and 5-day moving averages, which indicates rising bullishness. For those who are unfamiliar with charts, when the stock price/shorter term moving average cuts a longer term moving average from below, it is an indication of potential upside. Another technical indicator, the MACD, also indicates that NVDA stock might have finally turned the corner. The MACD line recently crossed over the signal line from below, which indicates that the current rally in NVIDIA stock price may continue over the coming trading sessions.

To sum up, the rising sales of Nintendo Switch, NVIDIA's prime position to leverage growth in the Self-driving car market and the bullish technical charts indicate that the current rally in NVIDIA stock is here to stay. Looking for great tech stocks to buy? Then do check out Amigobulls' top stock picks, which have beaten the NASDAQ by over 138%. If you're looking for top picks from the auto sector, you should also check out our top auto stock picks, which have beaten the S&P 500 by over 168%. Liked our post? Do let us know in the comments section below. Also, don't forget to share across your social networks.


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Virendra Singh Chauhan Virendra Singh Chauhan   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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