Nvidia Stock Analysis: Technical Indicators Ahead of Earnings

Nvidia, a leading figure in the AI sector, is set to release its earnings report on Wednesday evening. Both fundamental analysis and chart patterns suggest a cautious approach for investors.

Sentiment surrounding companies benefiting from AI development has begun to shift. Concerns about data center expansions are gaining prominence, and increasing costs for each additional gigawatt of computing power due to memory bottlenecks are a significant factor. Furthermore, the declining cost per AI compute unit (tokens) is raising questions about the financial sustainability of proprietary AI labs like OpenAI and Anthropic, given their substantial financial commitments.

Consequently, Nvidia's stock, after reaching its highest close since mid-May on August 13th, has experienced a seven-day losing streak, including a decline on Monday. The stock has fallen over 7% during this period, underperforming the tech-heavy Nasdaq's approximate 3% pullback.

From a technical standpoint, Nvidia's stock is currently near several critical levels, making the upcoming earnings announcement particularly significant for market sentiment and short-term trading. As the world's most valuable company and a central player in the AI trade, often referred to as the 'central bank of AI' due to its investments and financing support for the AI ecosystem, Nvidia's performance is closely watched.

While Nvidia's stock appears inexpensive at less than 17 times its fiscal 2028 earnings estimates, indicating long-term positive prospects, the current downward momentum, coupled with broader concerns in the AI trade, warrants caution. Let's examine three key charts that illustrate this situation.

Key Support Levels

A 12-month chart of Nvidia's stock price reveals important support levels. The first notable level is $207, close to the current stock price. This coincides with the 50-day moving average (red line), a widely followed technical indicator for stock trend assessment. If this level holds, it is expected to act as support, potentially leading to a stock bottoming and an upward rebound.

However, if this support fails, a move below the $200 level, towards the $195 region, is anticipated. This area is significant as it represents an unbroken uptrend dating back to the March low and, crucially, the 200-day moving average (yellow line).

While traders typically view these moving averages as buying opportunities, Nvidia's impending earnings report could alter this perspective. Fundamental investors would likely prioritize the earnings results, guidance, and management commentary over these technical levels when making trading decisions.

MACD - Momentum Indicator

A glance at Nvidia's daily stock chart suggests a waning momentum. A more quantitative assessment is provided by the Moving Average Convergence Divergence (MACD) indicator, which tracks exponential moving averages to forecast future momentum and direction.

The MACD line (blue) is calculated by subtracting the 26-period EMA from the 12-period EMA. The signal line (red) is the 9-period EMA. The 0-line indicates whether the MACD is positive or negative.

A bullish signal occurs when the MACD line crosses above the signal line below the 0-line, and a bearish signal when it crosses below the signal line above the 0-line. Confirmation of momentum shift occurs when the MACD crosses the 0-line: a move from below to above the 0-line is bullish, and a move from above to below is bearish.

Nvidia's MACD has crossed below its signal line but remains above the 0-line, indicating a bearish posture that is awaiting confirmation. This current technical setup heightens the importance of the upcoming earnings.

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is another momentum indicator used to determine if a stock is overbought or oversold.

Nvidia's RSI is currently in the mid-40s. An RSI below 30 signifies oversold conditions, while an RSI above 70 indicates overbought conditions. The current RSI level suggests that the stock is far from oversold.

While trading volume has decreased recently, it is not sufficient to counter the downward price movement. This indicates that Nvidia may have room to decline further before oversold conditions might prompt buyers to enter the market.

Conclusion

Nvidia faces a challenging situation leading into its earnings report. Fundamental concerns related to the data center trade, particularly increasing political scrutiny, have heightened caution. Technical indicators suggest the stock is approaching critical support levels. While there is hope that Nvidia's earnings announcement will provide reasons for optimism, current indicators suggest a cautious outlook, signaling a "yellow light" for investors.

Nvidia, the poster child of the AI trade, is set to report earnings on Wednesday night. Both the fundamentals and the charts suggest investors should proceed with caution. For several reasons, sentiment around the beneficiaries of the AI buildout has begun to sour. Pushback on data centers has become a key topic heading into the midterms. Memory bottlenecks are also increasing the cost for each additional gigawatt of compute. Furthermore, declining costs per unit of AI compute, known as tokens, are calling into question the ability of proprietary AI labs, such as OpenAI and Anthropic, to meet their substantial financial obligations.

As a result, Nvidia went from registering its highest close since mid-May on August 13th to a seven-day losing streak, including Monday's decline. It has fallen over 7% in this rough patch, underperforming the tech-heavy Nasdaq's roughly 3% pullback. From a technical perspective, Nvidia's stock is now hovering near several key points of interest, making the upcoming earnings release all the more important from a sentiment and near-term trading standpoint. The market will undoubtedly be paying close attention. Nvidia is the world's most valuable company and the leader of the AI trade. Due to its investments in other AI ecosystem members and its role in facilitating financing for data center construction, it has been dubbed the 'central bank of AI.' This makes CEO Jensen Huang somewhat the AI Fed chair. When Huang speaks, we, and the rest of the market, listen.

Nvidia's stock continues to look inexpensive, trading at less than 17 times fiscal 2028 (ending January 2028) earnings estimates. This is attractive, and we remain long-term positive on the name. However, the downward momentum now taking hold—along with the broader AI trade concerns mentioned above—suggests that caution is warranted. Let's take a closer look at three charts that help explain why.

Key Support Levels

This is a 12-month stock chart for Nvidia, with its daily price action shown in blue. The first level of note is $207, only a few dollars from the current stock price. This is where we encounter the 50-day moving average (red line), a widely followed technical indicator to gauge the overall trend of a stock. Given that we are currently above it, we are looking for this level to act as support, meaning we would expect buyers to step in here and absorb excess supply, resulting in a bottoming of the stock and an upward rebound. However, should that support not materialize, we are likely looking for a move below the $200 level, to around the $195 region. There, we find an intact uptrend going back to the March low. More importantly, though, that level is also where we find the 200-day moving average (yellow line). While traders would generally look at the 50-day and 200-day moving averages as buying opportunities, Nvidia's looming earnings report changes the calculus slightly. As fundamental investors first and foremost, we would argue that once Nvidia reports Wednesday night, nobody will be concerned with these levels. Instead, they will be rushing to either buy or sell the stock based on the results, guidance, and management commentary. We certainly won't be citing them as a reason to be bullish or bearish on the release; we will rely entirely on the results and commentary for those calls. To put it more precisely, let's consider a scenario where Nvidia's guidance for the current quarter underwhelms expectations. These support levels on the chart would struggle to bear the weight of a light outlook.

MACD - A Momentum Indicator

A quick look at Nvidia's daily stock chart reveals a superficial story of a stock running out of momentum. However, a more quantitative view of this can be seen by examining what technical investors refer to as the 'MACD,' which stands for 'Moving Average Convergence Divergence.' It tracks several exponential moving averages, aiming to reveal information about future momentum/direction. Here's what it looks like for Nvidia on a 12-month basis:

Now let's break down the components of the chart and how the MACD works. The blue line is the actual MACD and is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The red line is called the 'signal' line and is simply the 9-period EMA. The other component to note is the 0-line, which simply indicates whether the MACD is positive or negative, and by how much. The early indication comes when the blue MACD line crosses through the red signal line: The MACD crossing above the signal line, while occurring below the 0-line, is bullish. The MACD crossing below the signal line, while occurring above the 0-line, is bearish. The confirmation occurs when the MACD crosses through the 0-line: A cross of the MACD from below the 0-line to above would confirm that momentum is now to the upside (bullish). A cross of the MACD from above the 0-line to below would confirm that momentum is now to the downside (bearish).

Looking at Nvidia's MACD, we see that the MACD has now crossed from above the signal line to below it, though it currently remains above the 0-line. Therefore, we are looking at a bearish posture, but are still awaiting confirmation, which raises the stakes for the current technical setup.

Relative Strength Index

Another momentum indicator is the RSI, or relative strength index. This indicator helps technicians gauge whether a stock is overbought or oversold—similar to how we at the Investing Club look to the S&P Short Range Oscillator to help us figure out conditions in the broader market. The RSI can be used to zoom in on individual names. Below is where Nvidia currently stands (blue is the RSI, the red bars are daily trading volume):

What we see with Nvidia is an RSI in the mid-40s. This means we're far from oversold—anything below 30 is oversold; above 70 signals overbought. While volume has been somewhat lower in recent days, it's not enough to argue against the downward move. So, this suggests that there's still room for Nvidia to drop further before anyone waiting for oversold conditions feels motivated to step in.

The Bottom Line

Nvidia is in a tough spot heading into earnings. The fundamentals surrounding the data center trade, specifically the rising political pushback, have us feeling more cautious than we were even just a week earlier. And as we look at the charts, we see a stock poised to test some key levels. Of course, we hope that Nvidia on Wednesday night can offer some reasons for us to grow more optimistic. For now, though, we see a flashing yellow light.