NVIDIA Corporation (NASDAQ:NVDA) stock has found support from its 50-day moving average after the recent correction.
It is not often that you find a stock tank after reporting an earnings beat and providing better than expected guidance. Which is why the post earnings sell off in the NVIDIA Corporation (NASDAQ:NVDA) stock took many investors by surprise. After all, the company delivered a sound beat on both top and the bottom line. NVIDIA Corporation delivered an earnings beat of 31% and the top line exceeded the expectations by $270 million. In spite of this, the stock had tanked by over 7%, the day after the earnings. And while stock did make some recovery, NVIDIA stock had continued to trend lower since earnings.
NVIDIA stock has strong support at current price level.
However, the stock is likely to bounce from the current levels. NVIDIA stock has found support from its 50-day moving average. 50-day moving average is generally considered a strong technical indicator. As can be seen in the technical chart, NVIDIA stock has found strong support from the 50-day moving average in the last three months. The stock has bounced back after testing the 50-day SMA during the post earnings pull back. 50-day SMA is again likely to provide support to NVIDIA stock. The declining volumes suggest that the downtrend is weakening. The stock closed up by over 2% in yesterday's trade.
NVIDIA Corporation has strong fundamentals.
And, while technicals indicate an immediate uptick in NVIDIA stock price, fundamentals and analysts commentary suggest a good long term potential. NVIDIA has continued to deliver strong growth with revenues growing by 54% in the previous quarter. The growth was broad-based. The data center segment reported 175% year-on-year growth, contributing nearly 20% of the company's overall revenues. The gaming segment, which contributed 53% of the revenue was up 52% YoY. The company is also very profitable. It reported a net margin of 26% and an operating margin of 30.8%. Return on equity for the quarter (on an annualized basis) came in at 40%, which is very impressive.
Datacenter revenue growth will pick up going forward.
Some reports have suggested that the reason for the steep decline in NVIDIA's stock after the earnings was because the company missed on its data center revenue estimate. NVIDIA missed the estimate by 7%. However, investors must keep in mind that this segment contributes just 17% of NVIDIA's total revenues and growth was still impressive at 175%. So, the steep decline in the stock is more than warranted by the miss.
Also, one reason why the data center revenues came in lower could be due to some of the customers postponing their purchase waiting for the Volta-based platforms to fully ramp up. During the conference call, NVIDIA CEO has suggested that Q2 was a transition quarter for data center segment, and the demand will pick up going forward. Canaccord Genuity’s Matthew Ramsay who raised his price target on NVIDIA stock from $180 to $190 expects the data center demand to pick up. "some investors believe this quarterly result could mark the end of strong datacenter sales growth and fear rapid share loss to in-house ASICs. We disagree and anticipate a strong sales ramp for Volta- based datacenter cards with more application-specific AI features and tensor cores for AI workloads." he said in a note. Additionally, there is a reason to believe that Volta will have a higher ASP than its predecessor which will also help the margins.
Although growth will slow as the law of large numbers kicks in, NVIDIA's growth forecast is still very strong and substantially higher than that of peers. NVIDIA gave a better than expected guidance for Q3. Analysts were looking for just 6.1% revenue growth in Q3 2017, but the company guided to more than 17% growth at the midpoint. NVIDIA is a leading play on AI, autonomous vehicles, machine learning, and next-generation data center.
NVIDIA stock remains a good buy.
Analysts continue to remain bullish on the stock. Goldman has advised investors to buy growth stock like NVIDIA while Barclays upped its price target on the stock. There are some who believe that the train has left the station, time to invest in NVIDIA was a year back. And while NVIDIA stock did rally 160% in last one year and a massive 684% in the last two years, it still has upside left. To quote SunTrust Robinson Humphrey analyst William Stein, "Despite the big run in NVDA’s shares in the last 1.5 years, we expect the stock will continue to outperform over the coming year owing to revenue and EPS upside potential across most segments (especially Datacenter for AI applications) and a sustained higher P/E owing to the scarcity premium for structural growth in large-cap semis." NVIDIA stock still remains a good buy.
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