(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Nvidia’s stock has fallen sharply in recent days and is now down by more than 16% from its recent record highs. But technical analysis suggests the stock may be drop by 10% more from its current price of around $242. (See: Nvidia’s Overbought Shares Seen Falling 9% Short Term.)
The dark outlook is a result of the broader negative sentiment for the chip sector even as analysts forecast Nvidia will deliver strong earnings in November.
Nearing Critical Support
The chart shows the stock is trading near technical support at $236. Should the stock fall below that level, it could plunge as low as $217, the stock's next major level of support. Also, the stock has fallen below the lower end of a long-term trading channel, which has been in place since August of 2017.
Another negative sign for the stock is that the relative strength index is trending lower, indicating a loss of bullish momentum.
The weak technical outlook comes amid robust financial forecasts for the quarter. Analysts see Nvidia's earnings rising by 46% to $1.94 per share. Meanwhile, revenue will increase an estimated 24% to $3.26 billion. Analysts expect full-year growth to be even stronger.
Bearish Sector Sentiment
But those positive fundamentals haven't been enough overcome the bearish outlook for the rest of the chip sector. The PHLX Semiconductor Index is now more than 13% off its 2018 highs and may fall even lower.
Should Nvidia deliver better than expected results in a few weeks, sentiment may improve toward the stock. But Nvidia's stock will continue to face major headwinds as long as investors are down on the sector. (See: Chip Stocks Face More Declines As Billings Plunge.)
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.