Nvidia dropped more than 6% after the earnings report, equivalent to around a 10% decline from its recent peak in August. The earnings report was actually very strong, with earnings per share beating expectations by 5.47%, revenue surpassing estimates by 4.24%, and data center revenue exceeding forecasts by 4.76%. However, market expectations were much higher than the analyst consensus, possibly because recent earnings reports have consistently outperformed consensus estimates for several quarters.
Another concern for traders was the Blackwell design. The company admitted that there are some issues, although it did not provide details. Despite these problems, Nvidia expects “billions of dollars” in revenue from Blackwell in the fourth quarter. CEO Jensen Huang stated that supply will improve with each quarter, well into 2025, signaling that growth is far from over.
(NVDA Weekly Logarithmic Chart)
The recent decline in NVDA stock appears to be a correction of excessive expectations. After some of the hype has subsided, the earnings report and forward guidance contain no bad news that could derail Nvidia’s massive uptrend—for now. The chart above is on logarithmic scale. Typically, logarithmic scales reduce the steepness of trends, but in Nvidia’s case, the uptrend remains very impressive. Despite this steep logarithmic trend, Nvidia’s valuation may not be overly hyped and could even be considered relatively inexpensive. The 12-month blended forward price-to-earnings ratio is 33.8x, which might be higher than most stocks but is not unusual for NVDA. The five-year average is 47.5x, and the two-year average is 45.9x, indicating that the current price is not expensive relative to historical averages. Instead, there is more than 50% potential upside. As long as the AI market continues to grow, Nvidia’s long-term prospects look very promising.
(NVDA Daily Logarithmic Chart)
While the long-term outlook is positive, there are some risks for the short-term outlook. The $117 support level is crucial for NVDA. When this level was broken in July, the price dropped to $90 in just two weeks. After recovering this key level in August with a low volume surge, it is now being tested again. If there is a clear break below $117, the price could fall to the trendline, which is just above the previous resistance level of $97 from February-March. There are not many strong support levels between $117 and $97, which could trigger a long squeeze. However, whether Nvidia holds the $117 support level or falls to around $100, downside moves are likely to continue to be buying opportunities as long as the weekly trend remains intact.
