Nvidia (NVDA) is a giant in data centers and gaming, but semiconductor companies are bracing for a bumpy 2023. Is Nvidia stock a buy right now?

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Semiconductor News

Chipmakers broadly face several challenges, from high inflation, weak global growth and the Russia-Ukraine war to increasingly fraught U.S.-China relations.

Recently, World Semiconductor Trade Statistics predicted that chip sales will decline 4.1% in 2023. Chip sales rose 26.2% in 2021 and 4.4% in 2022.

For those looking for top large-cap stocks to buy now, here’s a deep dive into NVDA stock.

Nvidia Stock Technical Analysis

Shares of Nvidia popped 6.4% to 178.39 on Jan. 20, extending a recent rally above the 50- and 200-day moving averages. NVDA stock has surged 20.7% so far in 2023, one of the Nasdaq 100’s top performers.

NVDA stock has formed  a cup base within a larger consolidation with a buy point of 188. The chip stock crashed in 2022 and remains more than 38% below its 52-week high. However, Nvidia stock is well off October 2022 lows.

NVDA earns an IBD Composite Rating of 69. In other words, Nvidia stock has outperformed 69% of all other stocks in IBD’s database in terms of combined technical and fundamental metrics.

Investors generally should focus on stocks with Comp Ratings of 90 or even 95 and above. Though it falls short of that threshold now, NVDA can often be found on the IBD Leaderboard, IBD 50, Big Cap 20 and Sector Leaders lists.

The relative strength line for NVDA stock is improving after a plunge in 2022, already right at consolidation highs, a bullish sign.

The RS line indicator rallied strongly from mid-2019 to late 2021, IBD MarketSmith charts show. A rising RS line means that a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.

The IBD Stock Checkup tool shows that Nvidia stock carries a Relative Strength Rating of 81, meaning it has outperformed 81% of all stocks in IBD’s database over the past year.

The iShares PHLX Semiconductor ETF (SOXX) holds both Nvidia and AMD stock.

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Nvidia Earnings

Nvidia’s EPS Rating is 60 out of 99 and its SMR Rating is a B, on a scale of A to a worst E. The EPS rating compares a company’s earnings growth to other stocks. Its SMR Rating gauges sales growth, profit margins and return on equity.

In November 2022, Nvidia missed Wall Street’s earnings target on higher-than-expected sales for its fiscal third quarter, ended Oct. 30.

The Santa Clara, Calif.-based company earned 58 cents a share, down 50% vs. a year earlier. Sales slid 17% to $5.93 billion. It marked the second straight quarter of earnings declines.

Nvidia is set to report fiscal fourth-quarter earnings on Feb. 22. Analysts polled by FactSet expect Nvidia earnings to slide 39% for the quarter. They project expect NVDA earnings will fall 26% for the full year on basically flat sales.

In fiscal 2024 starting Feb. 1, Wall Street expect Nvidia earnings to rebound nearly 33% per share, but still slightly below the fiscal 2022 peak. It’s also far below the scorching pace of earnings growth seen in 2021 and 2022.

Out of 42 analysts covering NVDA stock, 28 rate it a buy. Twelve have a hold and two have a sell, according to FactSet.

The early 2020 coronavirus pandemic fueled demand for chips used in computers, video games and data centers. That, in turn, led to a chip shortage for much of the last couple of years.

The chip shortage could now become an oversupply problem in 2023, some industry experts say.

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NVDA Backstory, Rivals

The fabless chipmaker pioneered graphics processing units, or GPUs, to make video games more realistic. It’s expanding in AI chips, used in supercomputers, data centers and drug development.

Nvidia’s GPUs act as accelerators for central processing units, or CPUs, made by other companies.

In addition, Nvidia chips are used for Bitcoin mining and self-driving electric cars.

Nvidia has made a big push into metaverse applications. 

Besides NVDA, fabless chip stocks include Qualcomm (QCOM), Broadcom (AVGO) and Monolithic Power Systems (MPWR).

Amid industry headwinds, the fabless group ranks No. 48 out of 197 industry groups.

For the best returns, investors should focus on companies that are leading the market and their own industry group.

Is Nvidia Stock A Buy Or Sell?

On a fundamental level, Nvidia earnings and sales are expected to return to growth in 2023. 

The chipmaker is expanding in growth areas, such as data centers, automated electric cars, and cloud gaming. The adoption of metaverses and cryptocurrencies could further stoke demand for Nvidia chips.

However, macroeconomic uncertainties and risk of global recession continue to grow. Amid headwinds, semiconductor sales are expected to shrink this year.

NVDA stock has rallied in January to regain key technical levels after tumbling in the past year. But the chip stock is still below a buy point from a cup base.

Bottom line: Nvidia stock is not a buy. As a leading chipmaker with exposure to top end markets in data centers and gaming, Nvidia is always one to watch.

Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.

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