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Nvidia AI Chip Flaw Report: Is It a Buying Opportunity?

By:H, Jessica
Last updated:08/05/2024
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Nvidia AI Chip Flaw Report: Is It a Buying Opportunity?

Nvidia (NVDA) stock suffered a sharp 7% decline on Monday following reports that the leading AI chipmaker is facing delays in the launch of its next-generation AI chip, Blackwell, due to a design flaw. This news sent shockwaves through the market, causing several of Nvidia’s key customers, including tech giants Alphabet (GOOGL), Meta (META), and Amazon (AMZN), to experience a drop in their stock prices. 

Friday’s trading session also saw a decline in Nvidia’s shares, triggered by revelations that the Department of Justice is probing its acquisition of Run.ai, an AI startup. Additionally, Nvidia’s practice of selling multiple AI chips to cloud providers is currently under review. The stock took another hit on Friday, falling 2% after a significant 6.7% drop on Thursday. Over the past two weeks, Nvidia has lost its grip on the 50-day moving average and is now trading 17% below that level. 
As investors grapple with whether this pullback signals a red flag or a potential buying opportunity, it’s crucial to approach the situation with a level head. Emotional decisions can cloud judgment and lead to costly mistakes. By adhering to proven trading strategies, investors can enhance their chances of success and make a more informed assessment of whether Nvidia stock is a worthwhile investment at this juncture.

Is Demand for AI Chips on the Rise?

Good news emerged from Meta Platforms late Wednesday, as their AI costing plans gave a significant boost to the leader in AI chips. Meta is a prominent customer of Nvidia’s AI chips, with reports indicating their intention to install 350,000 Nvidia H100 graphic cards by the end of the year. This substantial investment underscores the growing demand for advanced AI technology. 

In another development, Nvidia announced plans to launch its cutting-edge artificial intelligence platform in 2026, utilizing next-generation memory to enhance processing speed. Furthermore, Foxconn recently revealed its intention to construct an advanced computing center in Taiwan, powered by Nvidia’s Blackwell chips. This collaboration between Nvidia and Foxconn aims to expand into the autonomous driving and electric vehicles market through the establishment of data centers. 
Meanwhile, although Tesla currently utilizes Nvidia chips, they have plans to eventually produce customized chips in-house, indicating a shift towards more independent and specialized technology solutions in the automotive industry. These advancements highlight the rapidly evolving landscape of artificial intelligence and its growing impact on various industries.

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Nvidia Announces Stock Split Plan

Nvidia’s stock split, effective June 10th, goes beyond just price reduction per share. This strategic move positions the AI chip leader as a potential candidate for the Dow 30, a prestigious price-weighted index. History shows that companies like Apple and Amazon.com saw their stocks rally after similar splits. Analysts are calling this a “generational buying opportunity,” indicating that the split could be a catalyst for even greater growth and momentum for Nvidia. Investors are watching closely as this development unfolds, eager to capitalize on the potential upside.

Does First Quarter Results Show Promising Signs?

Nvidia shares surged to record highs on May 22nd, as the company’s fiscal first-quarter results exceeded expectations. With sales skyrocketing 262% to reach $26 billion and earnings per share jumping 461% to $6.12, the AI leader continues to demonstrate its remarkable growth trajectory. Furthermore, Nvidia has announced a partnership with Microsoft to make the latest AI software compatible with its graphic processing units, indicating a significant expansion in its capabilities. This news comes on the heels of Nvidia shares surpassing a key buy point following the Google AI Conference, where the search giant unveiled various ways artificial intelligence will revolutionize search. Despite Google’s tensor processing units posing competition to Nvidia’s chips, Nvidia maintains its dominant position in the data center AI chips market. 

Ahead of the earnings report, analysts from Baird, Susquehanna, and Barclays revised their price targets for Nvidia upwards, reflecting the company’s positive outlook. However, it’s worth noting that the stock holds an Accumulation/Distribution Rating of D- on an A+ to E scale, indicating heavy institutional selling in recent weeks. Despite this, Nvidia continues to be a force to reckon with in the AI industry.

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How AI Products Are Fueling Growth?

Nvidia, a renowned trailblazer in the technology industry, has established itself as a leader in graphics processors, revolutionizing computer gaming. The company’s chips have expanded beyond gaming to transform industries such as healthcare, automobiles, and robotics. In March 2023, generative AI made a significant advancement with the introduction of OpenAI’s ChatGPT, and Nvidia’s AI-capable supercomputer played a pivotal role. According to Nvidia CEO Jensen Huang, the supercomputer laid the foundation for the “iPhone moment of AI,” marking a turning point in the company’s fortunes.

Following a period of declining sales and tapering earnings in late 2022 and early 2023, Nvidia has achieved remarkable top- and bottom-line growth in the two most recent quarters. This impressive turnaround highlights the company’s resilience and ability to capitalize on emerging trends. The global AI chip market is poised for significant growth, with revenue expected to increase by 26% from $53.4 billion in 2023 to $67.1 billion in 2024, according to a recent report from Gartner. Nvidia, with its proven track record of innovation and market leadership, is positioned to capitalize on this expanding market and continue its upward trajectory.

As AI technology continues to evolve, Nvidia remains at the forefront, leveraging its expertise in graphics processors and AI capabilities to shape the future of various industries. The company’s commitment to innovation and its ability to adapt to changing market dynamics make it a force to be reckoned with in the global technology landscape. With a strong foundation and a bright future ahead, Nvidia is poised to maintain its position as a leading player in the AI chip market and beyond.

Nvidia’s graphic processing units are poised to drive the company’s revenue to $119 billion by 2027, doubling its current earnings. These GPUs enhance computing speed in data centers and power AI applications, making Nvidia a leader in accelerated computing solutions for the future.

Nvidia Earns Top Ratings from Critics

Nvidia maintains a robust 98 Relative Strength Rating, reflecting its exceptional market performance. With an impeccable EPS Rating and Composite Rating of 99, Nvidia stands out as a market leader. 

Moreover, it’s proud to be among the Magnificent Seven stocks spearheading the 2023 rally. Its cutting-edge chips are relied upon by tech giants, underscoring its industry significance. Looking ahead, Nvidia is poised to exceed market expectations in 2024, making it a stock to watch closely.

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Is Nvidia Stock Worth Buying?

Chart patterns offer valuable insights into optimal buying and selling times for stocks. Nvidia’s stock chart recently indicated a cleared buy point of 92.22, signaling potential market movement. 

However, IBD MarketSurge reports that the stock is currently extended after a remarkable 239% surge in 2023. Despite experiencing losses in July and this month, Nvidia still maintains a year-to-date gain of over 100%. The stock has surpassed profit-taking targets at 20% and 25% above the 92.20 buy point and an alternative entry at 97.40. 
Currently, the stock is positioned 12% below its 50-day moving average, suggesting a cautious approach. Investors are advised to wait until Nvidia regains the 50-day line and establishes a stronger base before making an initial purchase. 
Additionally, institutional support could benefit from further improvement. Given these factors, the stock is not considered a buy at this time. Stay tuned for updates on Nvidia’s market performance and potential buying opportunities.

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