How much better can things get? Potential double-top.After reporting earnings earlier last week, shares of NVIDIA have been struggling to march higher, and if you wonder how this is possible despite astounding results, here is some food for thought. The tech giant has experienced an unprecedented rally of more than 360% since October 2022, and it is no secret that the revolution in the AI sector has highly contributed to this fact. It did not take long until the talk in the news was all about large corporations investing hundreds of billions of dollars to fund artificial intelligence research and about AI disrupting various fields and reshaping the world as we know it.
With this narrative playing out, the tech giant delivered outstanding performance for the second quarter of fiscal year 2024. Its GAAP-calculated operating income was up by 1,263% YoY, net income by 843% YoY, and diluted earnings per share by 854% YoY; then, on top of that, in the third quarter of fiscal year 2024, operating income increased by another 53% QoQ, net income by 49% QoQ, and diluted earnings per share by 50% QoQ.
While these are indeed incredible results, more often than not, when things are starting to be too good, the situation starts to beg the question of how much better they can get. Therefore, it is also important to consider the broader economic context. There is an apparent slowdown in multiple sectors outside of technology, like manufacturing, real estate, cargo transport, etc. These other sectors could eventually ripple into the tech industry, impacting overall economic growth and investment. Moreover, replicating the astonishing success of the last year indefinitely is improbable. Market saturation, increased competition, and potential regulatory changes are just a few other factors that could contribute to the normalization of growth rates.
Regarding technicals, RSI, Stochastic, and MACD have started to decline in the past few days (on the daily chart), accompanied by the formation of a potential double-top pattern. As these developments are bearish in nature, we are growing increasingly suspicious about the upcoming move in the stock. Consequently, we will be attentive to NVIDIA’s performance in the following days and weeks.
Illustration 1.01
Illustration 1.01 shows the daily chart of NVIDIA and simple support/resistance levels derived from peaks and troughs.
Technical analysis gauge
Daily time frame = Slightly bearish
Weekly time frame = Slightly bearish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.
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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
