NVIDIA Corporation (NASDAQ:NVDA) stock is a safe bet on the cryptocurrency boom. Why? Continue reading to find out more.
NVIDIA Corporation (NASDAQ:NVDA) shares have had a relatively quiet month so far. After outperforming the broader markets by a significant margin up to the start of this month, NVIDIA stock has lost 0.3% this month, underperforming the Nasdaq Composite (INDEX:COMPX), which is up marginally with a 0.1% return over the same timeframe. In comparison, the S&P 500 (INDEX:SPAL) is up by nearly 0.7%, implying that NVIDIA has had a relatively bad month. However, NVIDIA stock is still the top performer among S&P 500 stocks, up 180% over the last 12 months. With NVIDIA stock price flirting with a key support level for well over a month, any positive triggers which send the stock on a breakout need to be closely watched.
NVIDIA Stock: Are We Seeing A Breakout?
Shares of NVIDIA corporation showed some positive momentum in the last trading session. NVIDIA stock price rose by more than 3% in the last trading session, which sent the stock clear of its key support level: the 20-day simple moving average (SMA). The fact that this comes on the back of a nearly one-month long consolidation phase augurs well for NVIDIA investors. The stock had been trading in close proximity to the 20-day SMA for the most part of this consolidation phase. In this context, any sustained breakout above this level will be a welcome sign for the NVIDIA bulls.
The more important question is what exactly will help NVIDIA stock breakout? Well, we believe that the trigger has already taken effect and a breakout could well be underway. So, what caused the big up-move in the last trading session? The latest Wall Street commentary offers some answers.
Cryptocurrency, A Longer Term Tailwind For NVIDIA Stock
As we had written in the past, the cryptocurrency boom had a strong impact on NVIDIA's financials in the last reported quarter. In dollar terms, the GPU-demand from cryptocurrency miners added over $150 million to the company's topline, which lifted NVIDIA's quarterly print significantly above Wall Street estimates. In light of the strong beat, the big question was whether NVIDIA stock would continue to ride these Cryptocurrency driven tailwinds. We had also highlighted in our earlier NVIDIA coverage (post referenced above) our rationale as to why Ethereum demand will continue to drive GPU demand from cryptocurrency miners.
The recent commentary from Jefferies analyst Mark Lipacis offers more evidence that the cryptocurrency demand is here to stay over the long term. In a research note to clients on Monday, the analyst noted that the demand for GPUs used in cryptocurrency mining was likely to stay healthy through Q3, contrary to the popular belief (among WS analysts) that a drop in cryptocurrency mining demand will drive material downside in NVIDIA stock. Moreover, the analyst believes that NVIDIA, as well as rival AMD (NASDAQ:AMD), will be more or less insulated to future drops in the prices of cryptocurrencies when compared to previous cycles. Why? The analyst pointed to the fact that both the GPU leaders had introduced cryptospecific GPU SKUs which won't compete with core gaming GPUs. In other words, a drop in cryptocurrency prices will not see these specific SKUs compete with other gaming GPUs.
Lipacis reiterated a buy rating and $180 price target on NVIDIA stock. However, the most important part of the commentary from the Jefferies analyst came in reference to the longer term impact of the cryptocurrency mining demand. As reported by CNBC, Lipacis wrote that "We actually believe that the technology they are based on, called Blockchain, which supports secure accounting of distributed ledgers, has applications in financial services beyond cryptocurrencies. We expect demand for Blockchain GPUs (including for cryptocurrencies) to continue to grow and become an important driver for GPU growth, even if with some degree of volatility." What Lipacis essentially hints at is while the cryptocurrency driven GPU-demand might well be volatile, the longer term GPU demand from Blockchain applications, in general, will ensure that this demand will not fade away anytime soon. In other words, NVIDIA investors fearing a pullback driven by material inventory correction should rest assured that such a scenario will not pan out anytime soon.
To sum up, NVIDIA stock price has been consolidating in a tight range over the last one month. In light of this, any breakout above the key support levels (20-day SMA) needs to be closely watched. As we had stated in the past, Cryptocurrency driven GPU-demand will mostly be a longer term tailwind, a fact confirmed by the recent commentary from Mark Lipacis. Given the positive long term impact on GPU manufacturers, the momentum in NVIDIA stock should likely continue, over the near term.
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