Investing

Following Earnings, Has NVIDIA Stock (NVDA) Become the Market's Newest "Meme Stock”?

Chris MacDonald

Published: November 21, 2024 2:01 pm

AI advancements have reshaped the entire landscape around tech stocks, with generative AI and other technologies driving considerable growth investors are looking to capitalize on. Indeed, the top way to play this sector right now remains Nvidia (NASDAQ:NVDA), a company that provides the high-performance GPUs which power the entire AI landscape. 

As the leader in high-performance chip making, Nvidia has made a name for itself as a top growth stock in the market. And having briefly become the world’s most valuable company on a number of occasions over the past year, questions around whether the company’s current valuation is warranted have unsurprisingly surfaced.

Now, the question many are asking is whether this stock is overvalued, as many other meme stocks may be. Or, if the company’s current growth rate can continue, and earnings beat after earnings beat are in order.

Nvidia reported earnings this week, bringing in top- and bottom-line beats, as well as 94% year-over-year revenue growth. Despite surging in today’s session following these results, the company’s share price has since given up those gains, though NVDA stock does look like it’s going to make a comeback to end the day likely somewhere around flat.

Let’s dive into what to make of this stock’s recent rally and whether Nvidia is the new meme stock investors should be excited (or wary) of right now.

Key Points About This Article:

• Some volatility around Nvidia following its recent earnings report has led investors to take a more measured approach to this hyper-growth name.
• Now, the question many are asking is whether Nvidia has fully become a meme stock, and what to make of such a view on this chip maker.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

The Rally Continues

Nvidia’s recent rally really started well before this earnings report. In Tuesday’s session, shares of Nvidia stock climbed as investors anticipated a blowout upcoming earnings report. And while Nvidia certainly beat on most important metrics, it’s also true that the whisper number on the street does appear to have been higher. That’s partly being priced in today, though I wouldn’t expect to investors digest these numbers and come to a different conclusion in the coming days.

Nvidia continues to see strong growth across all of its core business lines, and commentary from the earnings call did dispel some concerns around potential issues with the company’s Blackwell AI chip rollout. A 94% year-over-year growth rate is still one that approximates triple-digit growth, and is far higher than the 80% growth the market had previously priced into this stock.

One could argue that retail investors don’t pay as much attention to these targets analysts set as other investors do, hence the move into earnings. But with significant momentum still behind this name, and a range of meme investors and speculators continuing to focus on trading Nvidia (either the stock directly or via options), this is a company that could see more big moves ahead.

Feels Like a Meme Stock

I’ve come across a number of Reddit posts that highlight the sort of disbelief and incredulousness some investors feel toward others who are buying Nvidia stock at its current valuation. yes, plenty of growth is priced into NVDA stock at the $130 level. But with a $3 trillion market capitalization company making high single-digit daily moves on a somewhat frequent basis, it’s clear that there’s reason why many investors may feel this stock is more meme-like than blue-chip in nature. 

I do think there’s something to this sentiment. A mega-cap stock like Nvidia shouldn’t, at least in theory, be making the kinds of moves it has in recent years. Other large-cap companies do see volatility around earnings and other key announcements, but the degree to which their stocks move on such catalysts is typically much smaller in nature relative to Nvidia.

Again, I think there are reasons for this. With a sky-high revenue and earnings growth rate, Nvidia has proven to be a difficult stock to forecast. And thus far, with bulls being mostly proven right by this chip maker, it’s clear that betting against this particular name is an increasingly dangerous endeavor.

So, until the company fails to beat earnings or provide much higher growth than the market is pricing in, I do think Nvidia will continue to display meme stock-like characteristics.

What to Expect with Upcoming Earnings

The company’s third quarter results are now a thing of the past. Investors are already looking through to what the fourth quarter may bring, and to what degree the company will likely beat earnings this quarter. With Blackwell chips now in full production, and this rollout expected to provide some revenue and earnings growth acceleration, the race is on for Nvidia to continue to outperform and potentially return to the triple-digit growth rate this coming quarter.

We’ll have to see how the company performs moving forward. I’m of the view that Nvidia’s results continue to be reliant on strong structural tailwinds remaining in place for this sector, and  I don’t have a solid thesis as to why this trend may change in the near-term. Of course, chip sales are cyclical, and if we do get some sort of larger macroeconomic shock, that could change the calculus significantly behind this stock. But for now, Nvidia’s status as a meme stock will likely remain.