NVIDIA Bulls In Charge Ahead Of Wednesday Report

NVIDIA Corp. (NVDA) reports Q2 2020 earnings after the close of Wednesday’s U.S. session, with Wall Street analysts expecting a profit of $1.68 per-share on $3.66 billion in revenue. The graphics card manufacturer beat top and bottom line Q1 estimates in May and raised Q2 revenue guidance, with personal computer, video game, and mobile device sales surging as a result of COVID-19 pandemic shutdowns and self-quarantines.

NVIDIA In Talks To Buy UK Chip Designer

The company is engaged in talks with SoftBank to acquire U.K. chip designer Arm for £40 billion. The local press is calling on the British government to intervene, worried about potential job losses. Arm, which supplies technology to Apple Inc. (AAPL), was put up for sale in April, with Goldman Sachs Inc. (GS) contracted to ‘sound out buyers’. NVIDIA has emerged as the sole suitor, with a potential deal expected to close by year’s end.

Raymond James analyst Chris Caso added to bullish sentiment last week, stating, “we reiterate our Outperform rating on NVIDIA and raise our price target to $500 ahead of Q2 results. While the stock has had a good run, we consider NVDA to have among the strongest product cycles in semiconductors, given the continued ramp of Ampere for datacenter, and the upcoming ramp of the new gaming chip, for which it appears the launch will occur on August 31.

Wall Street And Technical Outlook

Wall Street consensus on NVIDIA is highly bullish, with a ‘Strong Buy’ rating based upon 25 ‘Buy’, 3 ‘Hold’, and just 1 ‘Sell’ recommendation. Price targets currently range from a low of $260 to a street-high $540 while the stock is trading more than $50 above the median $433 target. Q2 profit and revenue numbers on Wednesday will need to fire on all cylinders to justify this lofty placement, especially with the expensive 91.0 price-to-earnings ratio (P/E).

The stock completed a 19-month cup and handle breakout above 290 in May and has added more than 190 points since that time. It’s also more than doubled in price since the last trading day of 2019, with both metrics setting off extremely overbought technical readings. However, channeled price action since May lowers the risk of new long positions, with nearby channel support allowing traders and investors to place relatively tight stop losses.