Nvidia Helps Lead Semiconductors Higher: Now What? - TheStreet

Shares of Nvidia (NVDA) - Get Report were broken, shattered and free-falling. In the first few days of October, the leading chip manufacturer was trading north of $290, flirting with a run to $300.

Days later it closed at $265; two days later it was $235. Within two weeks it was clinging to $200 before finally breaking down, striking $176 before snapping back like an overstretched rubber band. 

The action had investors' stomachs in their throat, knots galore. From top to bottom, we're talking about a ~40% haircut to Nvidia in less than a month. The action was shocking to many and really shows how overboard the market can get when it's throwing a tantrum.

The simple fact is that Nvidia isn't Advanced Micro Devices (AMD) - Get Report with its thin margins, nor is it Intel (INTC) - Get Report with its stagnant growth. While AMD and Intel each bring positives to the table, Nvidia has solid growth and impressive margins. The company's GPUs are top-line products being used as key components in secular growth industries like gaming and datacenter as well as high-growth industries like artificial intelligence.

Attending Nvidia's GTC conference in Washington D.C., the district's largest artificial intelligence conference of the year, was a stark reminder of that leadership.

Nvidia's GPU components hammer the performance of its competition, particularly those utilizing CPUs. It has made data-hungry, power-hungry tasks a breeze and in some cases allows for fantasy to become reality. Despite the naysayers, A.I. is poised to play a prominent role in many industries, ranging from transportation to agriculture to healthcare.

Put simply, the company isn't a commoditized chip maker operating at the whims of consumer taste. It's a vital cog in several secular machines. When Facebook (FB) - Get Report , Amazon (AMZN) - Get Report and other companies stop collecting consumer data, when customers and businesses stop relying on the cloud and data is no longer important, then Nvidia will be at risk.

See any of that happening? Neither do I.

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Admittedly, the semiconductor group is exposed to cyclical conditions and given that Nvidia is a large member of that group, it too will be susceptible to swings of investor sentiment. But that doesn't mean it happens without creating opportunity, which is exactly what investors were given when Nvidia dipped below $200 for several sessions.

Nvidia is expected to report earnings in two weeks, on Nov. 15. But keep in mind that trading this stock will not be easy. For starters, we have to consider how the semiconductor index is performing, along with technology stocks in general. Aside from that, we also have to keep in mind its trading pattern.

Take a look:

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Investors had plenty of sub-$200 opportunities. Should that opportunity come again, perhaps some longer term bulls will feel confident nibbling ahead of the print.

Nvidia is coming into a zone where it may fill the gap back up to $225 or so, but that's less than $10 per share of upside. With the 20-day looming ahead and the Nasdaq running into the backside of its 200-day moving average, we have to be cognizant that resistance likely looms ahead. A decline into earnings is likely a year-end gift. 

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This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.