NVIDIA Stock is Under Pressure After Earnings: Top 4 Reasons it Will Rebound

Key Insights

• NVIDIA stock price has pulled back in the past few days despite its strong earnings.
• The company has some of the best technicals as it has formed a cup-and-handle pattern.
• The company has become highly undervalued, with its forward P/E ratio falling to 22.

NVIDIA stock price has crashed after its earnings, which came out stronger than expected. It has slipped to $215 from the year-to-date high of $236. Still, there are at least four key reasons why the shares will bounce back in the near term.

NVIDIA Stock Price Technicals Suggest a Rebound is Possible

A closer look at the daily chart shows that the NVIDIA stock price formed a cup-and-handle pattern, a common continuation sign. This pattern is made up of a horizontal resistance, which is at $215, and a rounded bottom. It also has a handle, which, in this case, happened between April 27 and May 7.

The stock made a strong bullish breakout above the cup and reached its all-time high of $236. Therefore, the current retreat is part of a pattern known as a break-and-retest, which is a common continuation sign. In most cases, when an asset breaks out to the upside, it often retests that support level before the continuation.

NVIDIA stock is yet to get to its cup-and-handle pattern target, which is estimated by measuring the depth. In this case, the depth is about 22%. Measuring the same distance from the cup’s upper side gives it a target of $260.

Another bullish catalyst is that the stock has moved to the second phase of the Elliot Wave, which is usually bearish. After that, chances are that it will move to the third phase, which is usually the longest.

NVIDIA is Entering the $200 Billion AI CPU Industry

The other main catalyst for the NVDA stock price is that the company is now entering the AI CPU industry, which is seeing strong growth. This business is driven by the ongoing growth of AI agents, tools that can perform specific functions. These products don’t rely on the significantly expensive GPUs.

In a statement during the weekend, Jensen Huang noted that he expects the industry to be worth over $200 billion. This is notable because NVIDIA is not in the CPU industry yet, which means it will create a new revenue stream.

NVIDIA Growth is Not Slowing

Meanwhile, there are signs that the company’s business is not slowing as some analysts were fearing. To the contrary, the company is thriving, with numerous catalysts expected to push it higher.

The financial results released last week showed that the company made over $81 billion in the first quarter. Huang and the team expect the business to make $91 billion this quarter, excluding the Chinese business.

Therefore, there is a likelihood that the company will make more money than it has always done. In this case, it may generate as much as $95 billion in revenue.

Historically, its earnings have grown faster than its revenue. This means that it will accelerate its share buybacks. Last week, it announced a new $80 billion repurchase program.

NVIDIA Has Become a Bargain

Finally, despite having a $5.3 billion market capitalization, there are signs that the company has become a big bargain. For one, data shows that the company spots a forward price-to-earnings ratio of 22. That multiple is slightly lower than the average S&P 500 Index’s 23, a notable aspect for a company growing at over 80%.

The company also has one of the best Rule-of-40 multiples in the tech industry. Its forward revenue growth is 81%, while its profit margin stands at 56%, giving it a multiple of 137%. This figure is well above the 40 expansion zone, making it one of the cheapest technology companies.

To sum it up, NVIDIA stock has numerous catalysts that will drive it higher in the long-term, including its technicals and fundamentals. Also, it will be a top beneficiary of the upcoming OpenAI IPO.

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