Nvidia stock looks like a coiled spring: Is a big breakout coming?

Nvidia stock continued its recovery today, reaching its highest point since June 22 and up 10% from its low in June. This rebound may continue as the stock forms a falling wedge pattern and its revenue and profit growth accelerate.

Nvidia stock has become a bargain, which may lead to more repurchases

Nvidia NVDA stock has come under pressure in recent months and has lagged many of the market's biggest winners this year. The shares are up about 10% year-to-date, significantly underperforming the Nasdaq 100 Index, which has gained 15.7% over the same period.

This performance has made Nvidia stock a bargain, with its forward price-to-earnings ratio being 22. Its multiple is slightly higher than that of the S&P 500 Index, which stands at 21. It is also much lower than its five-year multiple of 43. 

A DCF valuation by Simply Wall St. places its fair price at $220, meaning that it is about 7.7% cheaper than its fair value. Similarly, the forward PEG ratio has dropped to 0.50, lower than the five-year average of 1.46. 

These valuation numbers mean that the company may decide to boost its share repurchase program. In its last earnings report, it boosted its share repurchases by $80 billion. It has been reducing its outstanding shares in the past few years, moving from 24.3 billion in 2023 to 24.2 billion. 

Growth momentum continues, but risks remains

Nvidia stock may benefit from the rising revenue and profitability growth. The most recent numbers revealed that its revenue jumped by 85% to $81.6 billion as companies continued their capital spending.

All indications are that the robust spending continued last quarter, as evidenced by the recent earnings reports by companies like Samsung and Micron. Also, most hyperscalers like Microsoft and Amazon have continued boosting their spending.

Analysts expect that its business will continue doing well. The average estimate is that its revenue jumped by 96.2% in the last quarter to $91.75 billion. It is expected to jump by 80% this quarter, with its annual revenue expected to hit $400 billion.

Nvidia has also moved to the CPU industry, which is expected to benefit from the boom in the AI agent sector. The company predicts that its CPU business will jump to over $20 billion this year.

Nvidia faces some major challenges, including the rising competition from its clients. OpenAI has already unveiled its chip, which is being made in a collaboration with Broadcom. Google is ramping up the production of its TPUs, while Microsoft and Amazon are working on their chips.

Also, there is a likelihood that the data center industry will start slowing over time. For example, New York has become the first state to impose a moratorium of data centers, and more states may follow. Indeed, data shows that data center projects worth $64 billion have been cancelled. 

NVDA stock price technical analysis

Nvidia stock chart | Source: TradingView

The daily chart shows that the NVDA share price may rebound in the near term. It has formed a falling wedge pattern, and is now slightly above its upper side.

The stock also found substantial support at the 200-day Exponential Moving Average (EMA). At the same time, the stock is inside the Ichimoku cloud indicator. 

Therefore, the stock will likely continue rising as bulls target the all-time high of $235. A surge above that level may push it to the next key resistance at $300.