NVIDIA (NVDA) Stock Dips Below $500 in 2020 Despite Record-Breaking Q2 Earnings

NVIDIA Corporation (NVDA) experienced a slight decline of approximately 1% in pre-market trading ahead of Thursday's market open, despite delivering outstanding second-quarter 2020 results that exceeded both revenue and earnings expectations. The company reported earnings of $2.18 per share, significantly outperforming the consensus estimate of $1.68, while revenue soared 50% year-over-year to $3.87 billion, surpassing analyst predictions. This sell-the-news reaction reflects investor expectations that had already priced in near-perfect performance.

Key Highlights

• NVIDIA's stock hit a resistance level at $500 earlier this week, marking a critical price ceiling.
• The post-earnings pullback suggests the market had fully anticipated the strong results.
• Short-term support is likely to form between $460 and $470 amid the current pullback.

The company’s data center segment was a standout performer, with revenue climbing to $1.75 billion in Q2, representing a 167% increase compared to the same period in 2019. This diversification reduces NVIDIA's reliance on retail consumers. Additionally, the recent acquisition of Mellanox contributed $0.14 per share to earnings in its first partial quarter since closing on April 27, further strengthening the company’s networking capabilities.

A robust product cycle fueled these impressive results, with anticipation building for NVIDIA’s upcoming gaming chip launch at the end of the month. Microsoft's (MSFT) Flight Simulator 2020, receiving rave industry reviews, is expected to boost demand for the new processor. Furthermore, a potential second wave of the pandemic later this year could increase gaming activity as more users stay home, providing additional tailwinds.

Cowen analyst Matthew Ramsey raised NVIDIA’s price target from $475 to $540 in pre-market trading, citing "another significant beat and raise driven by Ampere data center growth and Mellanox integration," alongside projected gaming growth exceeding 25% quarter-over-quarter in Q3 2020. However, Ramsey also noted that "the high expectations set a challenging bar, and core data center GPU growth may encounter hurdles."

Investor Insight

News traders leverage breaking announcements and economic reports to make short-term investment decisions, capitalizing on the immediate but often transient market reactions to such events.

NVIDIA Short-Term Price Chart Analysis (2018 – 2020)

After peaking at $292.76 in October 2018, NVIDIA’s stock underwent a steep decline of over 57% within three months, bottoming out in the mid-$120 range. A subsequent recovery attempt stalled in April 2019, followed by a successful retest of lows in June. The stock then formed a double bottom and rallied above previous highs by October, eventually returning to the 2018 peak by February 2020.

A sharp breakout added 23 points in three sessions before a pullback reinforced resistance near $300. Buyers re-entered aggressively near $180 in March, sparking a V-shaped recovery that reached Q1 highs by May. The stock surged over 180 points to reach an all-time high of $499.84 this week before retreating about 19 points, establishing $500 as a significant resistance barrier.

Price action has since consolidated within an ascending channel since June, compressing into August before reversing at channel resistance ahead of earnings. The stock may decline toward channel support near the 2.00 Fibonacci extension of the 2018 selloff, a level often signaling a high-probability turning point in strong uptrends. A breakdown here could trigger an intermediate correction, shaking out weaker shareholders.

Technical Tip

A price channel forms when a security’s price fluctuates between two parallel trendlines, which can be horizontal, ascending, or descending, depending on the trend direction.

Summary

Despite NVIDIA’s exceptional Q2 2020 earnings, the stock faced resistance at $500 and has since experienced a modest pullback. This decline may extend to support levels between $460 and $470 in the near term.

Disclosure: The author held no positions in NVIDIA or related securities at the time of writing.

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