An analyst called Wednesday’s fiscal second quarter report Nvidia (NVDA) the “biggest tech gain in years.” It’s not hard to see why. The artificial intelligence giant has already posted four straight quarters of triple-digit profit and revenue growth. Now Wall Street is expecting a fifth when the IBD Leaderboard member reports this week, as Nvidia shares aim for a breakout to a record high.
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How Nvidia reports and how the market reacts will undoubtedly have implications for the other Magnificent Seven members. Meta platforms (META) and Apple (AAPL) are both close to their own buying points, while Tesla (TSLA), Alphabet (GOOGL page), Microsoft (MSFT) and Amazon.nl (AMZN) remain below their 10-week moving averages.
Test 1: All eyes on Nvidia’s win
According to IBD Stock Checkup, Nvidia has generated an average of 500% profit growth over the past three quarters. During the same period, revenue growth has ranged from 206% to 265%.
On May 22, the company reported revenue growth of 262 percent in its fiscal first quarter to $26 billion, while earnings rose 455 percent to 61 cents per share.
When Nvidia reports after the close on Wednesday, analysts expect the AI leader to post revenue growth of 113% to $28.7 billion. On the earnings front, Wall Street is predicting earnings growth of 139% to 65 cents per share. For the full fiscal year, analysts are expecting earnings growth of 109% to $2.72 per share.
AI data center products and services now make up the lion’s share of Nvidia’s current total sales. CEO Jensen Huang has noted that both accelerated computing and generative AI have reached a “tipping point.” AI-related revenues in verticals like finance and healthcare have grown to billion-dollar levels.
Risk management – one of the four pillars of the IBD methodology
Test 2: Can Nvidia stock continue its 1,202% rise?
The aforementioned eye-popping growth has long put Nvidia in the spotlight. And that growth has sent Nvidia’s stock soaring 1,202% from its October 2022 low to its record high in June.
While investors should be aware that it’s risky to buy stocks right before earnings, Nvidia continues to work on a cup pattern with a buy point of 140.76. The stock is also targeting an earlier trendline entry.
Earlier this month, Nvidia shares showed they can take a hit and keep rising. After shaking off a selloff in July that pushed it below its 10-week line, Nvidia has since climbed back above that benchmark. On Tuesday, the stock rose more than 1% and held onto support above its 50-day line.
The relative strength line, which faltered in July, has risen but remains below its 52-week high.
Investors should also note that Nvidia’s current setup is a fourth-stage base. Such late-stage patterns come with more risk, especially after such a long and impressive climb.
Test 3: Managing expectations and risks
Nvidia has long been one of the best AI stocks to watch, and it could well surprise and delight Wall Street when it reports on Wednesday.
But investing wisely in stocks requires knowledge of risk management and discipline to apply good rules about how to buy stocks and when to sell stocks.
Now that Nvidia shares have made a remarkable climb over the past few years, including last month’s volatile period and its rebound back above the 10-week line, it has revealed the eight “secrets” of when to sell stock.
Nvidia has formed multiple bases since the first round of the Cup in December 2022-January 2023, presenting multiple buying opportunities. With the company releasing its long-awaited earnings report this week, investors should have a plan of action in advance.
For investors who already have a position in Nvidia stock, will you buy more shares if the stock breaks out? And how much?
For investors looking to start a new position, keep in mind that Nvidia has already made a huge move. A breakout would occur from a late-stage base.
While all eyes are on Nvidia, investors also need to consider how to manage their own risks and potential opportunities.
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