How to Trade NVIDIA (NASDAQ: NVDA) Stock Right Now

Today we’ll walk you through a trade idea with NVIDIA Corporation (NASDAQ: NVDA) that could deliver up to 29% returns in the next 3-6 months.

NVIDIA is a multinational technology company based in Santa Clara, California. It designs graphics processing units for the gaming and professional markets, as well as the system on a chip unit for the mobile computing and automotive market.

Analyst Ratings

According to TipRanks, there are 29 analysts offering 12-month price targets for NVDA in the last 3 months. 28 of those analysts rate it a buy, one has a hold and none have a sell. The average price target offered by these analysts is 9% higher than current prices.

Why is NVDA trending?

The global spread of coronavirus and the resulting lockdowns led to a rise in online activity. It also drove the shift toward working from home. This, in turn, led to a rise in demand for Nvidia’s graphics processing units (GPUs) from the computing and gaming segments, as well as from the data center segment.

Shares of NVIDIA tested a new all-time high level at $818 amid optimism about the company’s future performance in a world hungry for chips.

But, soon after, on July 20, Nvidia completed a 4-to-1 stock split. Since the price of its common stock shares had increased so much in recent years, the split was intended to help increase liquidity and improve equity for employees. The company said the 4-for-1 stock split would make “NVIDIA stock ownership more accessible to all.”

The stock witnessed a sharp sell-off soon after the split. However, the company soon found its footing after a dramatic drop and rallied back.

Most recently though, the stock has been closing lower again… thanks in large part to a comment from Credit Suisse analyst John Pitzer. In short, Pitzer is concerned about near-term volatility because of a slowdown in the cryptocurrency market. Any decline in the volatile cryptocurrency market is expected to have substantial negative consequences for Nvidia, as Nvidia recently commenced making dedicated chips for mining cryptocurrencies.

It may be noted that the AI chip market is also one of the most dynamic and competitive industries going. NVDA has significant competition from the like of Intel (INTC), which has been making big investments in AI chips, autonomy, and chip design; Google (GOOG), which had introduced its own AI chips just a few years ago; and Apple (AAPL), which is designing AI chips for the company’s iconic smartphones. Chinese AI chip startups are also attempting to unseat Nvidia, with a focus on AI edge computing applications.

However, the company still has a lot going for it. And when it comes to data center chips, NVIDIA absolutely owns the space. In 2019, NVIDIA GPUs were deployed in 97.4% of AI accelerator instances – hardware used to boost processing speeds – at the top four cloud providers: AWS, Google, Alibaba, and Azure. In fact, NVIDIA’s chips are found in 70% of the world’s supercomputers.

The $12.7 billion in cash on their books (offset by $7 billion in debt) also affords them room to make smaller acquisitions as well.

NVIDIA’s future growth acceleration might come from their planned acquisition of ARM Holdings. UK-based Arm Holdings is a semiconductor design company. ARM is expected to ship over 1 trillion IoT chips in the next 20 years with ARM IoT chips commanding an 80% market share. However, there have been reports that the U.K. is considering blocking Nvidia’s proposed $40-billion takeover of ARM on national security grounds.

As you can see, there are significant uncertainties, headwinds, and tailwinds for NVDA. Nevertheless, it can be an exciting stock to trade. With the company slated to report its second-quarter results for fiscal 2022 after the market close on Wednesday, August 18, here’s how we’d trade NVDA right now.

NVDA Chart

On analysis of the daily chart of NVDA, the overall trend of the stock seems to be up. The current decline in the price may be a short-term correction.

#1 Stock in an Uptrend: The daily chart shows that NVDA’s uptrend is still unbroken, as it has not yet dropped below the trendline.

#2 Near Fibonacci Support Area: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before resuming its upmove. The daily chart shows that the stock is currently nearing the support level of the 78.60% Fibonacci retracement level.

The stock is also currently near the 50-day SMA. The 50-day moving average is typically considered as the first line of support in an uptrend. Therefore, this seems like a good support area for the stock to bounce higher.

#3 Oversold RSI: The Relative Strength Index is currently nearing oversold levels. This indicates that a reversal may be imminent.

#4 Flag Pattern: The stock is currently consolidating in the form of a flag pattern. The daily chart shows that the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart in purple color. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case).

#5 Price Above MAs: The stock is currently trading above its 50-week as well as 200-week SMA. This indicates that the bulls are still in control.

Recommended Bullish Trade (based on the chart)

Buy Levels: If you want to get in on this trade, the buy level for NVDA is in two scenarios. These are marked as green color dotted lines in the daily chart.

• Buy Level #1: You can purchase the shares of NVDA if it closes above the price of $209.00.
• Buy Level #2: You can purchase the shares of NVDA if it corrects to the near-term support level of $178.00.

Important Note: Make sure that you only enter the trade once the daily close is above the recommended price level.

TP: Our target prices for various buy levels are as follows

• The target prices for Buy Level #1 ($209.00) are $230 and $250 in the next 3 to 6 months.
• The target prices for Buy Level #2 ($178.00) are $207 and $230 in the next 3 to 6 months.

SL: To limit risk, place a stop loss at the following levels.

• The stop loss for Buy Level #1 ($209.00) is $197.00.
• The stop loss for Buy Level #2 ($178.00) is $161.00.

Note that the stop loss is on a closing basis.

Target Upside: Our target potential upside is 10% to 29% in the next 3-6 months.

• Entry at Buy Level #1 ($209.00): For a risk of $12.00, our first target reward is $21.00 and the second target reward is $41.00. This is a nearly 1:2 and 1:3 risk-reward trade.
• Entry at Buy Level #2 ($178.00): For a risk of $17.00, our first target reward is $29.00 and the second target reward is $52.00. This is a nearly 1:2 and 1:3 risk-reward trade.

In other words, this trade offers 2x to 3x more potential upside than downside.

Risks to Consider: The stock may reverse its overall trend if it breaks down from the Fibonacci support and near-term support levels with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.

Recommended Bearish Trade (based on the chart)

In case the stock breaks down from the 50% Fibonacci support, it would point to an upcoming short-term correction. In that case, below are the entry level, stop loss level, and target prices.

Sell Level: You can take short positions on NVDA below the price of around $171.00. This sell level is marked as a red color dotted line in the chart.

Important Note: Make sure that you only enter the trade once the daily close is below the recommended price level.

TP: Our target prices are $160 and $150 in the next 3-6 months.

SL: To limit risk, place a stop loss at $177.00. Note that this stop loss is on a closing basis.

Our target potential downside is 6% to 12% in the next 3-6 months.

For a risk of $6.00, our first target reward is $11.00 and the second target reward is $21.00. This is a nearly 1:2 and 1:4 risk-reward trade

In other words, this trade offers nearly 2x to 4x rewards compared to the risks.

Risks to Consider: The stock may reverse its overall trend if it breaks upwards with high volume. The breakout of the stock could be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.

Happy Trading!

Trades of the Day Research Team