Here’s How Nvidia Can Save Tech Stocks

Over the past two weeks, the Nasdaq 100 has put together a decent rally. The tech-heavy index squeezed out a 5.5% gain over eight sessions, giving investors temporary relief from rising volatility.

Then earlier this week, the Nasdaq 100 hit a brick wall, in the form of its 200-day moving average (red). Since that rejection (arrow), the index has surrendered about 2.5% over two sessions. 

Double Technical Trouble

That moving average, currently located at 20,315, is complemented by the 38.2% Fibonacci retracement of the mid-February to mid-March pullback (point A to point B). This means the Nasdaq 100 has two concurrent obstacles that must be scaled simultaneously.

Nvidia NVDA is the third-largest stock on the Nasdaq 100, with a market capitalization of $2.74 trillion. The Santa Clara-based chipmaker trails only Apple AAPL ($3.37 trillion) and Microsoft MSFT ($2.91 trillion) in that category.

Nvidia has provided investors with triple-digit returns in four of the past five years. Last year, the stock gained 171.17%, on the heels of a 238.87% gain in 2023.

This year has been a different story. Nvidia shares have lost about 18.5% year-to-date, underperforming the broader indexes. The former market darling has acted like an anchor, but could Nvidia resume its leadership role?

Nvidia's Three Technical Obstacles

What does Nvidia have to do to regain its leadership position and drive the markets higher? The stock has been trapped in a bearish trend (black dotted lines) since the start of the year

Three obstacles lie in Nvidia’s path:

1. Nvidia’s 50-day moving average (blue), currently located near $125
2. Nvidia’s 200-day moving average (red), currently located near $128
3. A bearish trend line (black), located approximately at $131

If Nvidia can scale all three obstacles, it will resume its leadership role.

CoreWeave, Microsoft, and China

What three things could prevent Nvidia from regaining its crown?

1. China: In addition to trade tensions, China’s National Development and Reform Commission is requiring that companies use energy efficient chips in data centers. This could hurt demand for Nvidia's chips. 
2. Microsoft continues to downscale its data center projects. This is reportedly due to an oversupply of capacity relative to Microsoft’s current forecast for demand.
3. CoreWeave has just downsized its upcoming initial public offering, or IPO. CoreWeave provides AI infrastructure software and services. Nvidia is a key customer and shareholder of CoreWeave, owning nearly 6% of the company.

Bottom Line

The tech market needs leadership. With Nvidia in the dumps, the Nasdaq 100 will have a difficult time regaining its mojo. But if the chipmaker can break a few technical barriers, tech stocks could resume their ascent.  

At the time of publication, Ponsi was long AAPL.