New Stock Grades for Nvidia, Leading Chip Names as Performance Slips

About two months ago, I decided to trim my positions in AI chipmaking stocks by half. Up until then, we had been fully committed to one of the hottest tech sectors, but there were signs that these names were losing momentum.

Two months later, we’re still long all three names, but in smaller size than before.

26% Gain in Two Weeks

One of these stocks has vaulted to a 26% gain over the past eight sessions. What concerns me is that the S&P 500 is just 1% from a fresh all-time high, and these names are underperforming the broader market.

Let’s take a closer look at these three AI chipmakers and grade them based on their current performance. 

1. Advanced Micro Devices (AMD)

(AMD)  is on a tear, and has now closed higher for the past eight consecutive sessions. Over that stretch, the stock has rallied from $201 to $254, a gain of about 26%.

This stock appears to be forming a saucer pattern (shaded yellow). If successfully completed, that pattern suggests a target price of $300 for Advanced Micro Devices.

GRADE: A-

2. Nvidia (NVDA)

(NVDA)  has been hanging around the $185 area for the past five months. This could be considered a massive consolidation, in the wake of this stock’s incredible gains. Over the past five years, Nvidia shares have skyrocketed by 1,245%. 

Over the past few months, Nvidia has been oscillating above and below its 50-day moving average (blue).The 50-day MA is tilted slightly lower, while the 200-day moving average (red) continues to climb. The seeming contradiction indicates a temporary lack of direction.

Think of Nvidia as having eaten an incredibly large meal, that it is now digesting. It’s only a matter of time until it gets hungry again. 

GRADE: B+

3. Broadcom (AVGO)

Broadcom  (AVGO)  is nearing a four-month low. The Palo Alto-based chipmaker’s chart looks increasingly bearish, and is trading near a four-month low.

Broadcom hasn’t closed above its 50-day moving average (blue) in over a month, and that key indicator has been sliding since January 5. Over the past five months, this stock has formed a bearish rounded top (shaded yellow). 

GRADE: B-

Bottom Line

At least for now, it appears that we reduced these positions at the right time. We were able to lock in gains and reduce our risk, while maintaining the ability to participate in additional upside.

This also gives us the flexibility to reallocate funds to some non-tech areas, such as Boyd Gaming (article here) and Toll Brothers (TOL)  (analysis here). At our discretion, we have the ability to add to or further reduce all three AI chip names. 

At the time of publication, Ponsi was long AMD, NVDA and AVGO.