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Nvidia earnings: Chip stock is at a critical juncture, chart suggests

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Trading Nation: NVIDA earnings on deck — Here's what the experts expect

Nvidia is having a noteworthy year.

The top-performing information technology stock in the S&P 500 year to date, Nvidia has climbed more than 128% in 2020, its best annual gain since 2016 and its fourth biggest on record.

As such, expectations were high heading into the chipmaker's earnings report, scheduled for after the bell Wednesday. Nearly 80% of analysts have overweight or buy ratings on the stock, according to FactSet, with only three firms rating it a sell.

Unsurprisingly, Nvidia made good on those expectations, beating estimates for revenue and earnings per share and issuing strong guidance for its fiscal fourth quarter. The company's gaming and data center segments were highlights, with data center revenue up 162% year over year.

Two traders were hoping to see Nvidia continue to impress.

"Nvidia's got the front-row seat to three of the sexiest long-term investment growth stories out there," John Petrides, a portfolio manager in Tocqueville Asset Management's wealth division, said Wednesday on CNBC's "Trading Nation" ahead of the report.

"I want to make sure that all three of the long-term stories — the investment themes of gaming, artificial intelligence and electric cars — are still intact and that runway is still very much with the wind at their back," Petrides said.

If that was the No. 1 thing Petrides wanted to hear from Nvidia, more detail on the Arm acquisition was a close second.

"That's an enormous deal, $40 billion. They say it's immediately accretive," he said. "I'd like to get more information on that."

Meanwhile, the charts suggest Nvidia's stock is sitting at a critical juncture, Matt Maley, chief market strategist at Miller Tabak, said in the same "Trading Nation" interview.

After trading sideways for the last several months, the stock has now dipped below a trend line that's been in place since March, Maley said.

"That's not a big concern for me yet because ... it's broken below that by going sideways rather than rolling over in any significant way," he said. "It's interesting because the battle lines are very well defined."

If Nvidia breaks below $500 — just under its late-October low — it would start a pattern of lower lows that would be "very negative" for the stock, Maley said.

"However, if the news is good and the stock can rally, retake that trend line and break above the 575 level, that was the highs from September, October and earlier this month, so, any break above that level's going to be incredibly bullish," he said. "For me, I'm bullish on a year-end rally in the broad market, so, I'm bullish on this stock. But again, those two levels are very well defined: 575 to the upside, 500 to the downside."

Nvidia shares closed fractionally higher on Wednesday at $537.15. The stock sank less than half of 1% in after-hours trading.

Disclosure: Certain Tocqueville clients own shares of Nvidia. It is the 10th largest holding in the Tocqueville Fund (TOCYX).

Disclaimer