Shares of NVIDIA Corporation have entered a consolidation phase. Aided by recent positives, a breakout above the 20-day SMA will be a strong buy signal.
The last couple of months have seen shares of Jensen Huang led NVIDIA Corporation (NASDAQ:NVDA) alternate between periods of consolidation and sudden volatile swings. The period has seen NVIDIA stock trade from a high of nearly $175 a share to a low of $139.33 a share. A strong earnings report has failed to lift NVIDIA stock higher. Apart from a strong quarterly earnings announcement, NVIDIA Corporation also has multiple other things going right. Will the positive news flow over the last few days lift NVIDIA stock?
NVIDIA Stock Will Continue To Ride Cryptocurrency Tailwinds
To say that 'NVIDIA beat Wall Street expectations in Q2 2018' would be a bit of an understatement. NVIDIA did not just beat estimates, it bulldozed past estimates. Q2 is historically the weak link in NVIDIA's fiscal year. However, the company posted a stellar 56% revenue growth and an even more impressive 124% YoY earnings growth. In Dollar terms, NVIDIA posted a 22 cent earnings surprise and a $270 million revenue beat.
The strong performance, in a large part, was attributable to a surge in GPU demand from Cryptocurrency miners. Based on the Q&A following its Q2 earnings release, NVIDIA generated at least $150 million from the cryptocurrency driven demand for GPUs. In response to an analyst question, NVIDIA CEO Jensen Huang had this to say; "we actually gave a really great guidance last quarter, and we beat it by $250 million. And the $250 million you could see in our – we categorized under the OEM SKUs basically the cryptocurrency SKUs. And that, if you reverse-engineered it out, I think is approximately $150 million. And we serve the vast – I would say the large majority of the cryptocurrency demand out of that specialized products." The important question now is, will the GPU-demand from Cryptocurrency miners come to an end sometime soon?
SA author Motek Moyen offers some answers in this regard. Without getting into the details, here is what Moyen has to say. The cryptocurrency related GPU demand is driven mostly by Ethereum since it is a GPU-only cryptocurrency mining platform. Further, technical analysis indicates Ether is in a 'slow upward trend', which will make sure that the interest in the currency doesn't fizzle out anytime soon. And as Moyen notes, "As more people get involved in Ethereum mining, the difficulty curve correspondingly increases." Given the rapidly rising curve and the continued demand for Ethereum, the GPU-demand from cryptocurrency miners will only get stronger. But, Cryptocurrency demand isn't the only tailwind for NVIDIA stock. If recent analyst commentary is anything to go by, NVIDIA's rapidly growing data center segment is set to receive yet another boost.
Datacenter Tailwinds Will Also Aid The Rise Of Nvidia Stock
It's no secret that the Datacenter segment has been the biggest driver of NVIDIA's 'hockey-stick' growth over the last couple of years. The segment has reported revenue of $1.36 billion over the last four quarters, up from $473 million in the previous 4 quarter period. In terms of percentage growth, NVIDIA's data center revenue is up by 187% YoY over the last four quarters. Datacenter revenues could be in for some strong growth, with NVIDIA shipping its V100 accelerator in Q2 2017. Based on comments from Collette Kress, NVIDIA CFO, the V100 is a huge upgrade over its Pascal-generation predecessor, outpacing Moore's law by offering a 10X jump in deep learning power.
In more recent news, WalMart is reportedly building out/scaling up its cloud computing network, One Ops. According to commentary from Global Equities Research analyst Trip Chaudhry, WalMart is increasing its use of NVIDIA chips, which could provide a big boost to the company's datacenter revenues. Without divulging too many details about the financial implications for NVIDIA, Chaudhry wrote that WalMart's GPU cloud will be one-tenth the size of Amazon's AWS GPU cloud. Given that AWS is the leader in the cloud computing space, WalMart's focus on machine learning could pay rich dividends for NVIDIA as well.
NVIDIA Stock Technical Analysis
NVIDIA stock price is currently trading just below its 20 day Simple Moving Average, which is a key resistance level for the stock. On the downside, NVDA stock has support from the 50-day SMA, which currently lies 2.5% below the last closing price. In addition, the recent trading sessions have seen NVIDIA stock price consolidate in the $160 to $165 range. Given the technical setup, long term investors looking to initiate fresh positions should look to buy NVIDIA stock above the 20-day SMA. A rise above the 20-day SMA, supported by high volumes will be a bullish signal to go long. Hence, NVIDIA bulls should keep an eye on the technical chart and buy more NVIDIA stock once the chart flashes a bullish SMA crossover.
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