As popular as it may be, Nvidia (NASDAQ:NVDA) stock is not without flaws.
In recent years, the semiconductor giant has shown impressive levels of growth. But already reflected in its valuation, stocks could experience sharp declines if and when they start to fall short of expectations again.
This will not weigh on stocks in the short term. Demand for its CPUs and GPUs remains strong. A strong crypto market also reduces concerns about another crypto crash that negatively affected the stock in 2018 and 2019.
For now, until at least it announces its next quarterly results (sometime in November), Nvidia’s outlook remains unchanged.
However, there is something else that could make or break the stock, as the rest of this year unfolds. Unfortunately, this is beyond the control of Nvidia. I’m talking about the next market direction.
Following the recent conciliatory speech by Federal Reserve Chairman Jerome Powell, tech stocks may rise. Or, despite the post-speech rally, the markets will still be volatile in the coming months. Even though higher interest rates are still a long way off, the risk of a rapid rather than a slow decline is still on the table.
So, should we buy or take a more cautious approach? It mainly depends on your personal perspective on the future of the overall market.
NVDA share: underlying activity remains strong
The last time I wrote on Nvidia on July 29, I explained how its positives outweigh its negatives. More than a month later, it still is. As its most recent quarterly results show, its underlying business remains strong.
Thanks to strong demand for data centers and games, sales in the quarter ending August 1 increased 68% year-over-year and 15% sequentially (quarter-to-quarter). ‘other). Non-GAAP earnings from NVDA shares increased 89% from a year ago and 14% from the previous quarter.
Not only that, the crypto worries that once weighed down are now on the back burner. With Bitcoin (CCC:BTC-USD) making a comeback, there are now less concerns about a crypto crash and subsequent chip glut, which was seen a few years ago.
As you probably know, crypto miners are big buyers of Nvidia chips. The company tried to limit your exposure to this very cyclical market by releasing a dedicated mining chip, and has reduced the mining capacity of its GPUs to discourage their use for this purpose. With these preventative measures, along with the recovery in crypto prices, this summer’s concerns about the issue were likely overblown.
What the Fed’s remarks mean for Nvidia shares
Company specific factors can remain strong for NVDA stocks. However, it is not certain that market conditions will continue to be on his side. On the one hand, Powell’s recent remarks indicate that tech stocks like this continue to perform well.
In his speech from Jackson Hole, Wyoming, August 27Powell has expressed support for reducing the central bank’s bond buyback program, but said interest rate increases will not be immediate. He also still believes that today’s higher inflation rates are “transient”.
The market reacted positively to the speech, as it convinced investors that the Fed’s policies stay as is for at least the next few months.
In turn, investors have started to switch back to tech stocks as they are less worried about interest rate hikes. With a spin back in tech games, Nvidia could continue to push higher. That might not result in NVDA shares, already up around 70% year-to-date, making it up to $ 300 per share to close the year. But it can help his stocks gradually climb from here.
On the other hand, Powell’s speech does not guarantee that the good times will continue to roll. Much of his caution about cutting / increasing rates has to do with his goal of achieving full employment. Upcoming job numbers could signal that the Delta variant does not slow down the post-Covid recovery. With this, the Fed could start declining earlier than the end of the year. Yields on Treasuries could also rise. These two events that occur would send technology stocks in the wrong direction.
Buy now is a bet on the next market direction
Company specific strengths as well as market trends have helped Nvidia continue to gain in 2021. As its underlying business remains strong, it is likely that it will not disappoint in the quarters to come. With this, the future direction of NVDA stock prices depends more largely on the direction the market takes.
Your perspective should determine whether to buy, sell, or hold.
Do you think Powell’s statements indicate that the “easy money” policies will continue until 2022? Buy NVDA stocks, as they may have a more short-term lead. If you think otherwise, you might want to avoid him until he backs off.
At the date of publication, Thomas Niel held a long position in Bitcoin. He had (directly or indirectly) no position on any other title mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Thomas Niel, contributor for InvestorPlace.com, has been writing individual equity analysis for online publications since 2016.