NVIDIA Stock Jumps on $660B Tailwind, But Risks Still Loom
Key Insights
- NVIDIA stock price rose in the pre-market as investors cheered the recent earnings by top clients.
- The top 4 companies in the US plan to spend $660 billion in capital expenditure this year.
- However, technical analysis suggests that the stock will continue falling in the near term.
NVIDIA stock rebounded on Friday. Investors drove the rally by reacting positively to major U.S. companies’ spending plans. The surge reflected renewed confidence in the tech sector.
NVDA stock rose by over 3% in the pre-market, paring back some of the losses it made earlier during the week.
NVIDIA Stock Price Jumps as Big Tech Plans AI Spending Boom
The biggest U.S. companies plan to ramp up AI spending this year. They are actively investing to strengthen their technological edge. This move extends a long-running trend of rising AI investments.
Amazon, Google, Microsoft, and Meta plan to spend $660 billion on capital projects this year. Their budgets mark a sharp increase from last year’s levels. The surge highlights their aggressive push into AI and infrastructure expansion.
Amazon plans to spend a whopping $200 billion, $50 billion higher than what analysts were expecting. Google plans to spend $185 billion, while Meta Platforms and Microsoft plan to spend $135 billion and $150 billion.
These spending plans will benefit NVIDIA, a company that makes the most advanced chips in the industry. Based on these numbers, analysts likely underestimate NVIDIA’s revenue.
NVIDIA stock could benefit as actual earnings surpass current forecasts. Investors may drive the share price higher once results confirm stronger growth.
The average estimate among analysts is that NVIDIA’s revenue will move from $213 billion in 2025 to $324 billion this year. Its earnings-per-share are expected to jump from $4.69 to $7.6. NVIDIA has a long history of beating analysts’ estimates.
The revenue surge will be much higher once the United States finishes its review of H200 chip sales to China. If this happens, NVIDIA has predicted that it will start making over $50 billion a year in the country.
However, the real revenue will be lower as Beijing officials are setting quotas on the number of chips that companies can buy. For example, companies like Tencent, ByteDance, and Alibaba have been allowed to import 400k chips.
NVDA stock is Still Facing Major Risks
Planned capital expenditure supports NVIDIA’s growth prospects. However, investors face risks such as rising competition and potential regulatory challenges. NVDA stock performance may also be pressured by market volatility and shifting demand trends.
First, there are concerns that we are in an AI bubble. Some popular analysts have warned about this, noting that the current optimism about the industry is not logical. A good example of this is OpenAI, a loss-making company that has entered deals worth over $1 trillion.
OpenAI accounts for most of the planned spending by some of the biggest companies in the US. For example, Microsoft revealed that OpenAI accounts for 45% of its $625 billion orderbook. OpenAI is also responsible for most of Oracle’s backlog.
Second, there is a likelihood that these companies will start paring back their AI spending because of the recent stock action. Amazon’s stock price crashed by over 10% after revealing its AI spending plans. Similarly, Microsoft shares have plunged by over 30% from their record highs.
Investors are concerned that they are not seeing the results of the AI spending. For example, Microsoft’s AWS revenue pulled back in the last quarter.
Additionally, there is a risk that all these companies are all building their ASIC chips,. It’s a move that will see them reduce their reliance on NVIDIA’s chips.
NVIDIA Stock Price Technical Analysis
The daily chart reveals NVIDIA stock has declined steadily in recent months. The price action confirms it has entered a bear market. NVDA stock now faces downward momentum and investor caution. It has dropped by over 20% from its all-time high.
The stock rose by over 3% in the pre-market as investors cheered the CAPEX spending by its biggest customers.
However, the stock remains below the 23.6% Fibonacci Retracement level at $182. It has also moved below the 50-day Exponential Moving Average (EMA).
NVDA stock price chart |Source: TradingView
Most notably, it has formed a head-and-shoulders pattern, a common bearish reversal sign. The Relative Strength Index (RSI) is also pointing downwards.
Therefore, the most likely scenario is where the stock continues falling, potentially to the 50% Fibonacci Retracement level at $150. A drop below $150 will see it move to the 61.8% retracement level at $134.
The post NVIDIA Stock Jumps on $660B Tailwind, But Risks Still Loom appeared first on The Market Periodical.
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