Top Reasons Why NVIDIA Stock May Crash 16% Soon

The NVIDIA stock price has been in an unstoppable bull run this year, and is now trading at its all-time high as demand for AI GPUs jump. However, this rally could be about to fade, leading to a 16% plunge in the coming weeks.

NVIDIA Stock Price Technical Analysis Points to a Pullback

The daily chart shows the NVDA stock price has been in a strong bull run after bottoming at $87 in April. It has jumped by 110% from that low, pushing its market capitalization to over $3.4 trillion.

Still, there are signs that this bull run could end soon. First, it has formed a rising wedge chart pattern, which is made up of two ascending and converging trendlines. This pattern leads to a bearish reversal when the two lines are about to converge.

Second, the NVDA stock price has formed a bearish divergence pattern, leading to a breakdown. The Percentage Price Oscillator (PPO), a modified MACD, continued to move downwards even as the stock surge accelerated.

Similarly, the Relative Strength Index (RSI) has also started moving downwards and moved below the overbought level of 70. Like the rising wedge, the divergence patterns lead to a reversal.

Additionally, the NVIDA stock price is much higher than the 100-day and 200-day Exponential Moving Averages, which are at $149 and $136, respectively.

The moving averages could lead to a mean reversion, where an asset moves back to its historical range. NVIDIA share price has formed these reversals before. For example, it dropped to the middle of the 100 and 200-day moving averages in June last year.

Finally, the 16% crash will be part of a bullish continuation pattern known as a break-and-retest. This pattern happens when an asset soars above a crucial resistance level and then pulls back to retest the key support level.

If this happens, it will raise the possibility of the stock rising to $200, pushing its market capitalization to over $5 trillion.

NVDA Earnings Could Catalyze a Pullback

One of the potential catalysts for the NVIDIA stock price pullback is the upcoming earnings. Wall Street analysts have high expectations, especially after the recent results by some of its biggest customers like Microsoft, Google, Amazon, and Meta Platforms.

These results confirmed that the AI race is still on as they announced major capital spending activities. CoreWeave, another top NVIDIA customer, also published strong results, with its quarterly revenue crossing the $1.2 billion level.

Altogether, analysts expect the upcoming results to reveal that NVIDIA’s revenue rose by 52% in the second quarter to $45.75 billion. Historically, the company normally reports stronger-than-expected numbers.

The earnings-per-share is also expected to move from 68 cents in Q2’24 to $1, confirming NVIDIA as one of the fastest-growing companies in the United States.

The company will likely offer a solid Q3 guidance rather than the expected $52 billion. That’s because this quarter could include some H20 chips sent to China.

Still, China is a concerning part of its business after officials recommended against using NVIDIA chips. They argue that the H20 chips, which Trump called obsolete, are not advanced enough. Also, officials want to boost local chips made by companies like SMIC and Huawei.

However, solid results may not be enough to boost its stock price. For one, there is the lingering concern about its future growth trajectory as the AI data center spending boom slows or ends.

NVIDIA stock price has been in a strong rally this year, and this trend may continue in the coming months because of its strong fundamentals.

However, its technicals, including the break-and-retest pattern, bearish divergence patterns, and mean reversion points to an eventual pullback in the coming days.

This pullback may happen after the company publishes its quarterly results later this month.