Looking for This Nvidia Low With Chip Restrictions Looming
I have an updated plan for the AI darling as Wall Street points to a Trump administration deadline on chip exports.
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The headlines have been hot and cold of late. The Trump administration has added to the curbs on AI-capable computer chips first put in place by the Biden administration. Then, China's National Development and Reform Commission introduced energy-efficient rules for advanced computer chips.
These new rules would disqualify Nvidia's NVDA H20 chips for use by Chinese customers when building out their data centers. On Wednesday, the Financial Times reported that cloud computing startup CoreWeave had breached some terms of a $7.6 billion loan last year.
This apparently triggered a series of defaults, where CoreWeave had to ask its largest creditor, Blackstone BX to amend the terms of the loan and waive those defaults back in December. CoreWeave, of course, is backed by none other than Nvidia and is in the middle of carrying out its initial public offering to be listed at the Nasdaq market site.
On Thursday morning, Bank of America's five-star rated (by TipRanks) analyst Vivek Arya opined that NVDA could remain volatile right up until May 15. Earnings? Don't be silly.
That's the day that the federal government will go ahead and implement its tiered AI chip export restrictions, which will be referred to as the "AI Diffusion Rule." On this framework, which is a leftover product of the Biden administration, Arya wrote that the rule will attempt "to control the access of AI chips beyond a select group of 18 Tier 1 countries."
Arya added, “There is a wide range of outcomes, and NVDA stock could stay volatile till the May-15 date, aka 'Liberation Day' as a catalyst when the impact could be reflected in the stock.”
Arya sees Nvidia's stock stabilizing and even recovering once these geopolitical concerns are less uncertain and can be discounted by investors. Arya rates NVDA as a "Buy" with a $200 target price. With a last sale close to $114, that sounds like a fantasy as the stock has suffered a 25% beating since its early January high print for 2025.
Remember What I Wrote...
About a month ago, I wrote to you in response to Nvidia's quarterly earnings release. For the three-month period ended in January, the firm posted a GAAP EPS of $0.89, which crushed expectations on revenue of $39.33 billion, also crushing expectations. Earnings growth of 82% on revenue growth of 78%.
Unbelievably, that was a deceleration from prior quarters. Forward sales guidance was also strong but still reflected a continuance of this deceleration. For the current quarter, Nvidia projected total revenue of $43 billion (+/- 2%). That was above what Wall Street was looking for, but Wall Street can no longer be blown away by this firm's large sales projections. Additionally, that $43 billion, if realized, would amount to revenue growth of about 65%. Hmm.
The firm also predicted a GAAP gross margin for this quarter of 70.6% and an adjusted gross margin of 71%, plus or minus 50 basis points. That was just a touch below the consensus view. What I wrote to you at that time was this:
"Should the 200-day line (then lower) crack first, Wall Street will reduce long side exposure of this name and so will I. Should the 50-day SMA (then higher) crack first, Wall Street will add long-side exposure and so will I. This isn't rocket science."
The Nvidia Stock Chart
Oddly enough, this is close to the chart that I showed you a month ago. Readers can see that NVDA broke the 200-day SMA from above on February 27 and that's the direction I want because I am a trader. That said, I have added and sold shares without going flat the name since. The stock has now made a series of lower highs since very early January. Relative strength is "meh" as the daily MACD has been postured bearishly since... you guessed it, February 27. The stock also suffered a "death cross" about a week ago.
The bulls need the stock to take back its 21-day EMA. That could produce a swing trader's pop. For investors, the need is to see the 50-day SMA, currently at $125.50 take and held. That would put the 200-day SMA at $127.70 in play as well. Of course, retaking those two lines would force portfolio managers to get back to increasing their weightings for the name.
That said, the reality is that the recent low of $104.77 is just as much in play as are those moving averages. Create a new 2025 low and that puts "par" of the $100 level in play. Put par in play and this stock could easily trade at $90 as it did last summer.
My current plan? NVDA is not a top-ten allocation of mine at this time. I can afford to hold it where it is for some time. I am willing to add close to $105, but should $104.77 crack, I am outta here. I am also willing to add for a trade should the 21-day EMA crack to the upside. I'm not betting the farm on anything. This stock is no longer worthy of that kind of attention and that kind of focus. The money is to be made elsewhere.
At the time of publication, Guilfoyle was long NVDA equity.
