NVIDIA Stock Price Loses Crucial Support as P/E Ratio Hits Annual Low

Key Insights

• NVIDIA stock price dropped below a crucial support level.
• The company’s trailing and forward price-to-earnings ratio continued falling.
• The stock may continue falling in the foreseeable future as helium supply falls.

NVIDIA stock price dropped below an important support level on Friday, confirming the formation of a head-and-shoulders pattern. This retreat may continue in the coming days as global helium supplies come under intense pressure amid the ongoing Iran war. It has now plunged by over 20% from its highest point last year.

NVIDIA Stock Price Has Crashed Below a Key Support Level

There are signs that the NVDA stock price will crash further in the coming weeks after falling below a crucial support level. The daily chart shows that it dropped below the important support level at $170.12, its lowest level in November and December last year and February this year.

This price coincided with the neckline of the head-and-shoulders chart pattern, which has been forming since August last year. The head and shoulders is one of the most popular bearish reversal signs in technical analysis.

The stock is also attempting to move below the 38.2% Fibonacci Retracement level at $164.75. It has also formed a mini death cross, as the 50-day and 100-day Exponential Moving Averages (EMAs) have crossed.

Therefore, the NVDA stock price will continue to decline in the near term, with the next target at $150. This price is both a psychological level and also the 50% Fibonacci Retracement level.

The bearish outlook will be canceled if the stock rises above $181, where the 50-day and 100-day moving averages are today.

Helium Supplies Could Impact NVIDIA and Other Chip Companies

A major risk facing NVIDIA and other chip companies is that the ongoing US-Iran war is affecting manufacturing costs as crude oil and natural gas prices surge. The crisis is more pronounced in Taiwan, which imports most of oil and natural gas from the Middle East.

At the same time, the war is leading to a supply shortage of helium, a major component used in the chip manufacturing industry. While the United States is the largest helium exporter, Qatar is the second-largest exporter with a 30% market share.

As a result, Taiwanese companies will likely face the challenge of paying more money in importing helium from the United States, which may have an impact on its margins. It will likely pass these costs to NVIDIA and other chip companies.

The war may also impact NVIDIA’s business in the Middle East, where it has positioned itself well in the AI industry.

NVDA Stock is the Cheapest it Has Been in Months

Ideally, NVIDIA stock should be trading at a premium because its business continues to grow, with management predicting it will reach over $1 trillion by 2027. It is also one of the fastest-growing and most profitable companies in the United States.

However, despite these challenges, the company is now being valued as a value stock, with its price-to-earnings (PE) falling to the lowest level since April last year.

The company has a forward price-to-earnings ratio of 20, which is much lower than other companies in the US. For example, a report by FactSet estimates that the S&P 500 Index has a forward multiple of 23.

The company is also  a bargain based on other multiples, including the forward price-to-earnings-to-growth (PEG), which currently stands at 0.53, much lower than the sector median of 1.24.

The cheap valuation is driven by concerns that we are in an AI bubble and by some of its biggest customers working on their ASIC chips, a move that will reduce its long-term moat.

Still, the cheap valuation and its strong revenue and profitability growth means that the company may become a good buy, especially among investors with a long-term view. Indeed, chart analysis suggests that the stock has a long track record of having some pullbacks.

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