AI stock and graphics chip pioneer Nvidia (NVDA), today’s IBD 50 Stocks To Watch pick, is shaping its second base in four months. At first blush, against the backdrop of a fast-rising market, that may not sound so exciting.
But Nvidia stock, which is also in IBD’s current Leaderboard lineup, rose 77% in 2019. In 2020, shares quickly exited the coronavirus bear market in March and clocked a 150.6% advance for the year through September. Then the stock took a breather.
Nvidia launched in 1993, and went public at the tail end of the dot-com boom in 1999. It set out as a developer focused on using accelerator chips specializing in graphics applications to simulate human imagination. Starting in the gaming markets, that expertise eventually opened the door to a broad array of applications.
The company has leveraged its market position and design expertise to become a leading-edge player in the field of artificial intelligence. Nvidia’s deep-learning algorithms replicate human intelligence: they study and process data, then write their own software programs based on what they “learn.” The company’s initial thrusts toward dominance in the field have included automotive and gaming applications, but smartphones and network data centers are also key target markets for the rising AI stock.
Top AI Stock Acquires Mellanox, Arm Holdings
In April last year, Nvidia completed its $7 billion acquisition of Israel-based networking chip innovator, Mellanox. In September, Nvidia announced it would pay $40 billion to acquire U.K.-based ARM Holdings, a deal expected to close in 2022. Arm develops and licenses chip designs used to some degree in most mobile devices. Arm was previously acquired by Japan’s SoftBank (SFTBY) in 2016.
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On Sunday, China-based electric-vehicle maker Nio (NIO) announced its decision to go with Nvidia Drive Orin processors as the centerpiece of its autonomous vehicle technology. The chip will make its debut in Nio’s new ET7 sedans, high performance vehicles set to launch in 2022.
A note on Tuesday from Wells Fargo analyst Aaron Rakers said Nvidia’s gaming momentum was strong and set to continue with the company’s introduction of next generation GeForce mobile CPUs at this week’s CES 2021.
Minding Nvidia’s RS Line
Nvidia holds a 97 Composite Rating from IBD. The Stock Checkup function ranks Nvidia No. 5 in the highly competitive fabless chipmakers industry group. The group, on Wednesday, ranked No. 86 among the 197 industry groups tracked by IBD.
So, back to the AI stock’s current base.
IBD MarketSmith analysis charts the pattern as a 10-week flat base with a buy point at 587.76. The stock was about 8% below the entry on Wednesday.
The AI stock’s consolidation, while the rest of the market has advanced, means its relative strength line has trended lower for the past couple of months. That should start to change, so long as the stock moves toward its buy point in the coming days and weeks. If the RS line does not begin to move sharply higher as the stock price advances, that would raise a yellow flag.
Find Alan R. Elliott on Twitter @IBD_Aelliott
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