NVIDIA (NVDA) 2021 Outlook

NVIDIA Corporation (NVDA) completed the multi-year journey from specialty chip designer to big tech powerhouse in 2020, adding significant market share in reaction to Intel Corporation's (INTC) self-inflicted wounds. Market capitalization rose to $318 billion during the year, making it the eighth largest component in the Nasdaq 100 index. Better yet, the company's torrid growth rate should continue in 2021, raising the odds for another year of outstanding performance.

Key Takeaways

  • NVIDIA stock has posted a phenomenal 120% return so far in 2020.
  • Sellers might take control in January and test lower price levels.
  • The stock could book another year of strong returns.

The stock gained more than 120% in the first eight months of 2020 and eased into a correction, working off extremely overbought technical readings. Top performers in one year often underperform in the following year, but Intel's misfortunes have opened the door to a multi-year opportunity that is hard to quantify. 2020's only disappointment was the failure to split the stock, but NVIDIA could see the light in 2021 and take advantage of favorable market conditions.

Even so, price action doesn't look close to a breakout above September's all-time high near $600 as we flip the calendar into the new year. Volatility and buying spikes have been non-existent in the past two months, replaced by a narrow range tape that is showing no signs of waking up from the dead. January capital gains selling pressure could easily take control in this lethargic action, triggering a pullback to the September low at $468.

Wall Street consensus on NVIDIA stock has held at a "Strong Buy" rating throughout the year, now based upon 19 "Buy" and 3 "Hold" recommendations. One analyst is recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $400 to a Street high $700, while the stock is set to open Wednesday's session $80 below the median $600 target. This humble placement should underpin the upside in the first quarter.

Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured as either the standard deviation or variance between returns from that same security or market index.

NVIDIA Daily Chart (2018 – 2020)

Chart showing the share price performance of NVIDIA Corporation (NVDA)

A strong uptrend topped out at $292.76 in October 2018, giving way to a ferocious decline that shed nearly 170 points into December's 52-week low. The subsequent recovery wave finally completed a round trip into the prior high in February 2020, yielding a quick rally, followed by a failed breakout and 135-point decline. Bulls took control in the second quarter, powering a V-shaped bounce that completed a 100% retracement into the first quarter peak in May.

The stock broke out immediately, entering a momentum-fueled advance that nearly doubled the stock price into September's all-time high at $589.07. It fell to $468.19 just two sessions later, completing the edges of a trading range that hasn't been breached in the past four months. A November breakout attempt fell short, adding to a potential ascending triangle pattern that needs a third buying spike to complete.

However, weekly and monthly sell cycles are still in control, raising the odds for a decline that tests September range support. A bounce at that level could yield a rectangle pattern with a "bearish edge" because the stock would have to break the 50-day exponential moving average (EMA) to get there. As a result, bulls need to make a stand right here, keeping price close to the moving average until committed buyers come off the sidelines.

A rectangle is formed when the price reaches the same horizontal support and resistance levels multiple times. The price is confined to moving between the two horizontal levels, creating a rectangle.

The Bottom Line

NVIDIA stock could post exceptionally strong 2021 returns but may need to trade at lower levels before the next trend wave sets into motion.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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