I’m selling Nvidia this week [July 08th], and this is why!

Nvidia Corporation (NASDAQ: NVDA) shares have advanced more than 15% in the last thirty days, and the current price stands around $814. The current risk/reward ratio is not good for long-term investors, although an analyst from BMO raised his price target to $1000.

Fundamental analysis: Nvidia’s data center business could hit $32B in the next few years

Nvidia Corporation is an American multinational technology company that is the leader in the design of Graphics Processing Units (GPUs). Nvidia reported its first-quarter results in the last week of May; total revenue has increased by 83.8% Y/Y to $5.66 billion while GAAP EPS for the same period was $3.03 (beats by $0.51). Nvidia raised its outlook for the second quarter and announced that it expects revenue of $6.30 billion while GAAP and non-GAAP gross margins are expected to be around 65%.

Wells Fargo increased its price target from $715 to $875 on Nvidia and remains confident in Nvidia’s ability to sustain over 20% data center growth while still benefitting from a positive GeForce GPU upgrade cycle. Last week, a research company BMO also raised its price target from $750 to $1000 on Nvidia because it expects that Nvidia’s data center business will hit $32B in the next few years.

“The data center business continuing its evolution from “hardware to a hardware with a meaningful software component further out.” The increasing software mix is expected to raise gross margins to 75% from the prior model of 72%,” said Ambrish Srivastava, an analyst from BMO.

Nvidia Corporation is in a good position to grow its business, but with a $515 billion market capitalization, this stock is not undervalued, and the risk/reward ratio is not good enough for “value” investors. Nvidia trades at more than seventy times TTM EBITDA, the book value per share is around $30, and lots of positive expectations have already been included in the stock price.

Technical analysis: $700 represents a strong support level

Nvidia shares have been moving in an uptrend last several weeks, but lots of positive expectations have already been included in the stock price.

Data source: tradingview.com

Probably it is not the best moment to buy Nvidia shares, and if the U.S. stock market enters a more significant correction phase, the share price could be at much lower levels. The critical support level stands at $700, and if the price falls below this support, it would be a firm “sell” signal and probably a trend reversal sign.

Summary

Wells Fargo increased its price target from $715 to $875 on Nvidia, while a research company BMO set its target to $1000 because it expects that Nvidia’s data center business will hit $32B in the next few years. Nvidia is in a good position to grow its business, but this stock is not undervalued, and there are better long-term investment opportunities at the moment. If the price falls below $750 support, it would be a strong “sell” signal, and we have the open way to a $700 support level.

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