Nvidia (NVDA.O) remains the undisputed leader of the AI revolution, providing powerful computing capabilities to drive current and future AI models. Recent earnings exceeded expectations, showcasing its outstanding performance in major core areas. Currently, Nvidia's valuation is attractive compared to its peers.
From a technical perspective, the pullback after the earnings report provides a good entry point for bullish trades with favorable risk/reward potential. Notably, Nvidia's stock price fell another 3% on Wednesday. According to the NVDA stock price chart, it has recently pulled back to the support level of $136, which was a significant support and resistance area previously. Despite the stock price pullback, it remains in an overall uptrend, outperforming the S&P 500, and the relative strength indicators remain strong.
This pullback provides an opportunity to increase bullish positions, especially as momentum indicators stabilize and suggest that the previous uptrend may resume. It is expected that in the coming weeks, as investor confidence returns, the stock price may approach the resistance level of $156 again.
Nvidia's earnings report highlights its dominance in AI and accelerated computing. The Blackwell GPU has entered full production, with revenue reaching a record $35.1 billion, a 94% year-over-year increase. Among these, the data center business is the pillar of Nvidia's growth, with revenue of $30.8 billion, a 112% year-over-year increase. Nvidia’s current price-to-earnings ratio is 33 times, although higher than its peers, this valuation is understandable considering its projected earnings per share growth of 64% and revenue growth of 56%. In contrast, the median growth rates for the industry are 13.7% and 6.7%, respectively. Nvidia's 56% net profit margin far exceeds its competitors, further validating the reasonableness of its high valuation while still offering considerable upside potential.
To take advantage of Nvidia's strong fundamentals and technical support levels, consider buying a 136 USD/156 USD call vertical spread option expiring on January 17, 2025, at a price of $6.68.
Trade details:
Buy 1 contract of the 136 USD call option expiring on January 17, 2025, at a price of $9.55;
Sell 1 contract of the 156 USD call option expiring on January 17, 2025, at a price of $2.87;
Net premium paid: $6.68;
Maximum risk: $668;
Maximum return: $1332;
Break-even point: $142.68.
This strategy allows you to profit when Nvidia's stock price is above $142.68 at expiration, with maximum profit occurring when the stock price closes above $156. This trade offers a 2:1 risk/reward ratio, providing investors with a favorable way to participate in Nvidia's expected rise while limiting downside risk.
Article forwarded from: Jin Ten Data