Volatility To Continue in NVIDIA (NVDA, AMD, ARMH, INTC)

NVIDIA Corporation (NASDAQ: NVDA) is surging this morning after earnings, but we have a take that may differ from the initial market reaction so far.  The news is good.  The stock had also sold off by about half from its peak.  Unfortunately, this looks like the trading pattern is being set up for real price volatility to remain.

First and foremost, NVIDIA seems to be caught somewhere in the middle where it wants to be Advanced Micro Devices Inc. (NYSE: AMD) in graphics and wants to be like ARM Holdings plc (NASDAQ: ARMH) in mobile.  The company may argue differently, but the path of PCs and mobile computing has a collision course set for the years ahead.

The company noted in earnings that consumer demand for notebooks running the GeForce GPU with the Optimus technology brought record sales for that area. We cannot forget about Intel Corporation (NASDAQ: INTC) either as it migrates into more and more embedded markets away from just being PC processor leaders.

Earnings were $0.32 EPS on $1.02 billion in sales, while estimates were $0.26 EPS and $1.01 billion in sales.  Gross margin was nearly 52% due to cost cuts.

We have Thomson Reuters targets of $1.21 EPS for its fiscal January-2013, and with shares up almost 12% at $14.95 in pre-market that means that new buyers are paying 12.5-times forward earnings.  That sounds cheap, up to the point that you realize you can find many chip stocks and chip periphery companies trading at well under 10-times earnings.

NVIDIA has a 52-week trading range of $8.65 to $26.17 and shares closed at $13.41 before earnings.  The 50-day moving average is $15.30 and the 200-day moving average is $17.51.  The $15.00 price handle has also been a key pivot point in the last two months.

After adding up the score here, the scenario looks one that is more apt to see price volatility rather than just a straight massive rally.

JON C. OGG