Shares of NVIDIA Corporation tanked nearly 10% in the last trading session. Is it Time to sell NVDA stock? 

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Shares of Santa Clara, California-based NVIDIA Corporation (Nasdaq:NVDA) fell by 9.3% to close the last trading session on Feb 23 at a price of $100.49. If that wasn't enough, NVDA stock price fell by another 1.9% in after-hours trade, closing the extended trading session at a price of $98.56, levels which were last seen over 2 months ago. Is there further pain ahead of NVIDIA investors? Is is time to sell your NVIDIA shares and book the profits or an opportunity to buy in at these lower prices?

Selling NVIDIA stock Will Sacrifice Long-Term Gains.

Yes, that's precisely what we think of NVIDIA stock right now. Selling NVIDIA now could save you some short-term pain, but could also cost you meaningful upside over the long term. A quote from Don Connelly aptly summarizes our thoughts on NVIDIA. "Imagine that you had to drive from New York City to Los Angeles. You’re in downtown Manhattan hopelessly stuck in traffic. Bicycle messengers are whizzing past. You jump out of your car, sell your car on the spot (at a ridiculously low price), buy a bicycle, and continue your trip to the West Coast. As absurd as this scenario sounds, investors do it everyday when they make short-term decisions for long-term journeys. Stick with a vehicle that will take you to the end of the road." Well, the long term for NVIDIA stock is much brighter than what has been projected by the recent bearish calls. Why?

Well, let's just look a bit deeper into what caused the sell-off in NVIDIA stock. A couple of recent analyst reports seem to be at the heart of this misery for NVIDIA investors. As recently as Feb 22, Romit Shah, from the desks of Nomura, downgraded NVIDIA stock by multiple notches, raising concern over the firm's gaming segment. We addressed these 'Gaming' segment concerns in our previous NVIDIA post, citing the management commentary from the latest earnings call. Closely following the report from the Nomura analyst was one from the desks of BMO capital. BMO Capital's Ambrish Srivastava downgraded NVDA stock to underperform while also cutting his price target to $85, from the prior $100 target. The analyst believes NVDA stock is 'overvalued' as "the perfect storm in fundamentals that drove the rarely seen magnitude of earnings upside is ebbing." Well, Is it really?

NVIDIA Growth is accelerating

In order to understand if NVIDIA is losing momentum, we need to take just one look at its performance over the last 4 quarters. A lot has already been written about how the company has risen above expectations in each of the last 4 quarters, delivering 137% YoY growth in earnings and 38% growth YoY in topline for FY 2017. While these are, without a doubt, impressive numbers there's something even more interesting in NVIDIA's performance. NVIDIA's momentum has accelerated through the year which is reflected in the topline growth. NVIDIA's YoY growth numbers through Q1 to Q4 2017 came in at 13.4%, 23.9%, 53.6% and 55.1%, respectively. Well, contrary to what the latest analyst commentary suggests, the company has picked up greater momentum with each passing quarter. We believe that NVIDIA's growth in the datacenter, Autonomous driving and gaming space is far from over, which was also highlighted by the latest management commentary.

NVIDIA Analyst estimates

The current Wall Street consensus expects NVIDIA to report EPS of $2.83 for FY 2018, implying a 10% YoY growth. The consensus for the next two quarters is $0.66 and $0.62, respectively, implying a combined EPS of $1.55 for Q3 and Q4 of  FY 2018. This compares against EPS of $1.82 over in 2H FY 2017. In other words, the current analyst consensus expects NVIDIA earnings to decline in the back half of the current fiscal. Given the 3-figure earnings growth NVIDIA reported in the last fiscal, current estimates significantly underestimate NVIDIA, in our opinion.

NVIDIA technicals indicate a pullback up to $90 levels

However, from a purely technical perspective, the near 10% drop in NVDA stock price in the last trading session does alter the short-term outlook. NVDA stock has now fallen below its 50 day moving average on the daily chart. This is a clear bearish signal given that the 50 day moving average has been a support for NVDA stock at 3 points in the last one year. The next meaningful support for NVIDIA stock lies at around $90, a full 10 handles below the last closing price.

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Source: Technical Charts

Nvidia technical charts indicate that the stock price could be headed lower over the short term. Hence, investors should wait for the stock price to rise above the 50-day moving average, in order to enter into the stock. Else, a successful reversal from the next support at $90, accompanied by strong volumes would be a good entry point if the current downtrend persists over the next few trading sessions.