Nvidia's Breakout Seen Fueling 14% Stock Gain

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Nvidia Corp. (NVDA) continues to be one of the hottest stocks around, with the shares up nearly 155 percent over the past 52 weeks. But since January 29, Nvidia's stock has stalled, rising by only 2 percent. But the long-term uptrend appears to be taking over, with signs of a techncal breakout, which could signals shares may increase by roughly 14 percent from current levels around $251. 

Earnings for Nvidia are expected grow by nearly 40 percent in 2018, and with a forward earnings multiple for 2018 of roughly 36.7, it also implies the stock may be cheap, with a PEG ratio of less than 1. Meanwhile, an analysis of the options markets continues to suggest that shares may continue to rise. (See also: Options Basics.)

Breaking Out

The hourly chart shows Nvidia's recent stall, and a short-term downward trend starting on February 20. But the stock rose above the downtrend on March 9 and is having a strong follow-through on March 12, leading to the breakout. 

A Rise To $285?

The chart also shows the potential path Nvidia could take when rising higher, with two potential trend lines that trace out along the tops of the previous highs. The first path could take shares surging higher to nearly $285 should the current trend continue. A second path takes the stock out around $280 by mid-April. 

Other Bull Cases

The long straddle options strategy implies shares could rise or fall by nearly 17 percent from the $250 strike price. That puts the stock in a trading range of roughly $208 to $293. But the number of calls outfavors the puts by almost 2.5 to 1, with nearly 5,000 contracts of open interest to approximately 2,000 puts. (See also: What is a 'Call'?)

Analysts continue to see significant earnings growth from Nvidia in 2018, with earnings seen rising by nearly 40 percent to $6.85, while revenue is expected to grow by nearly 28 percent to $12.37 billion. 

But some analysts may be looking for ways to further stretching the bull case for Nvidia. An analyst at Jefferies sees the release of a new Steven Spielberg movie acting as a potential catalyst. But there is likely a long path from the virtual reality headsets seen in the movie to any benefit in sales for the graphics processing units Nvidia creates. 

There is no doubt Nvidia's growth potential continues to gain even more traction. This latest breakout is just one in what has become a series of many.  

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.