Perhaps it’ll take more than even a perfect, blowout quarter to fuel shares of Nvidia (NASDAQ:NVDA | NVDA Price Prediction) back to its prior all-time highs. Undoubtedly, the latest ceiling of resistance might take more than a shocker to break through, and that’s making it really tough for investors seeking to put a bit of new money to work. It certainly feels like Nvidia stock has been trading sideways forever.
In reality, though, it’s only been six months. And while the latest quarterly earnings showcase might feel like a defeat, especially for traders who were looking to play continued strength in AI demand, while punching a front-row seat to the Vera Rubin boom (the efficiency gains of the next generation of Nvidia chips are real).
It may feel like nothing can push shares of Nvidia over the top, but I do think that there is one encouraging thing for shareholders. The price-to-earnings (P/E) is compressing, and as long as Nvidia keeps serving up solid quarters, it’ll continue to move lower if the share price remains flatlined.
While there are a lot of things to be worried about, including bearish bets made by Dr. Michael Burry, as well as rising competition from the Mag Seven titans, as we shift gears from training to inference, I do think it might be a tad too early in the game to bail on Nvidia and its legendary top boss CEO Jensen Huang.
Perhaps Nvidia’s stock relative resilience compared to its Mag Seven rivals is a sign that the chip darling still has what it takes to roll higher. Of course, it feels like the AI trade is on pause until there’s confirmation that the profitability gains and ROIs are not only real and timely, but sizeable.
The case for staying patient as AI innovators navigate bottlenecks
As the AI innovators battle through capacity constraints and bottlenecks (think energy, random-access memory and storage chips) while frontier AI innovators race ahead, I think we will, in due time, get to a point where AI can hit the “play” button again. And once the trade is back, my guess is that Nvidia will be leading the way again.
Even though I was blown away by the latest Nvidia quarter, sometimes, all it takes is a bit of investor patience for a stock to start rolling higher again. After a feast of big gains, a lengthy period of digestion is always a good thing before jumping back into the pool to swim ahead. As the Rubin sales figures start rolling in while the multiple compresses a bit further, there might be enough fuel for Nvidia stock to get going again.
That said, the memory bottleneck certainly seems to be slowing things down. And it takes time for bottlenecks to resolve themselves. So, while AI and Nvidia seem to be slogging forward, I’d argue that patience could be the move, even if it means having the stock consolidate for the rest of the year.
It’ll take a real, big surprise to impress the market
At this juncture, the market is already expecting a lot from Nvidia, and as investors rotate into non-AI stocks, it’s going to take a surprise (arguably, a quarterly blowout is the new expectation) to move the needle.
Whether that’s a sales surge in China or a big investment from Nvidia that pays off in a profound manner (an AI drug discovery breakthrough might offer enough of a surprise), it’s going to take a lot to break out over the near term, at least in my view.
In the meantime, sitting in the stock and waiting for the second half (Vera Rubin results) might also be a good idea for the patient, especially given how much further the P/E could fall as the denominator swells while the numerator stays the same or trends a bit lower. Today, Nvidia stock goes for 36.6 times trailing P/E. That’s very reasonable. Once it falls to the 20s, it might be time to start nibbling again.
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