The entire chip sector shows a bottom and is on the cusp of reversal, with NVIDIA (NASDAQ: NVDA) in the lead. The company’s Q4 results were better than expected due to unexpected strengths that led to solid guidance. The stock is up about 150% from its latest bottom and on track to hit higher highs this year. The move is partly driven by the analysts lending support to the market. In the case of NVIDIA, its stock has received 2 dozen analyst updates that have it breaking out of a Head & Shoulders Reversal and ready to tackle the next resistance point near $275.
The 36 analysts rating NVIDIA have it pegged at a Moderate Buy with a price target trending higher than last quarter and last month. The caveat is that the consensus has the stock trading at fair value at its current levels, but the trend points to higher levels. The latest update comes from Robert W. Baird, who upped its target to $300. That is a full 21% above the current consensus and has the stock trading above its next resistance point. Citigroup and Morgan Stanley both see another few hundred basis points of upside on top of that.
NVIDIA Up On AI, Next-Gen: Gains Will Be Capped
The risk for NVIDIA shareholders is the outlook. The outlook is good, undoubtedly less bad than it could have been, but the company is still expecting a 20% decline in revenue for the current quarter. The strength in Q4 was driven by a shift to next-gen technologies and not so much by end-user demand, so there is a chance the weakness could persist through the end of the fiscal year.
AMD’s (NASDAQ: AMD) results weren’t better than NVIDIA’s and may fall into the “worse” column. The takeaway is that the analysts had secretly feared even worse than the company reported, which has put a bottom in the share prices. The results were driven by AMD’s diversification which is expected to continue supporting business this year. The Data Center and Embedded segments will offset weakness in Client and Gaming, resulting in a 10% YOY decline in revenue for the current quarter.
The analyst reaction was favorable, so there is a chance the market could follow NVDA up to retest resistance at higher levels. The 30 analysts produced 11 updates that confirmed the consensus price target. The stock is pegged at a Moderate Buy with a price target that assumes fair value at current levels. The caveat is the same as with NVIDIA; the latest updates have the stock trading closer to $115 or about 25% above the current price action. Raymond James analyst Srini Pajjuri views the chip market as mixed with strengths and weaknesses depending on the end market.
NVIDIA Broke Out: Will AMD Follow Suit
The price action in NVIDIA has been textbook over the last 3 months. The stock moved down to a low, confirmed a bottom, traced out a Head & Shoulders pattern, and then broke out of it. This has the stock on track to reach new highs, and AMD is right behind. So far, this market has formed the Head & Shoulders bottom but has yet to confirm the reversal A move above the neckline near $100 would confirm the reversal and bring targets near $140 into play.