According to Zhitung Finance APP, while NVIDIA (NVDA.US) stock price is rising, the market has raised some doubts about the company's strong performance. Some financial Analysts claim that NVIDIA may face a significant drop in the near future from a technical analysis perspective. Analysts believe the company also faces major operational risks from cyclical Semiconductor demand, potential Trump tariffs, and future competition, especially from Alphabet's newly launched AI-connotative Willow quantum chip.

Financial Analyst Paul Franke recently published an analysis article on NVIDIA. In a July article, he discussed the Ease-of-Movement index falling to a record low. He stated that limited Volume could significantly depress prices, which is a signal of bullish investors withdrawing Orders. Since then, the stock price has risen another 25%, and for Shareholders, everything seems fine as they believe this stock is not a risk asset but rather a one-way street to wealth (AI bubble frenzy).

Thus, if investors have only recently come into contact with this stock over the past few years, they may not understand that Semiconductor Industry demand is very cyclical, and even small economic changes can affect corporate capital expenditure decisions (NVIDIA's clients). Moreover, due to the competitive Technology business model, chip manufacturers like NVIDIA have indeed been facing constant pressure to launch new products to capture market share.

Macroeconomic changes beyond management's control could seriously drag down NVIDIA's Business in the coming quarters. The market will be concerned that incoming President Trump may impose tariffs on chips manufactured overseas (almost all chips sold by NVIDIA), as well as the impact of other policy changes on corporate/Consumer confidence for the remainder of 2025.

In terms of competition, the Willow quantum chip released by Alphabet a few weeks ago has caused significant concern. Not only are Technology giants like Broadcom (AVGO.US), Amazon (AMZN.US), and AMD (AMD.US) developing their own AI chips, but in one or two years, Willow's products could easily replace demand for NVIDIA's best-selling (and profitable) products. This would completely overturn the extremely optimistic outlook of AI developers with leading Central Processing Hardware during 2023-2024.

Furthermore, if Google's scientific achievements with the Willow chip prove to be accurate, it could be one of humanity's greatest inventions in the last 50 years. In terms of its impact on the development of human technology, Willow's computational power contribution could be comparable to the invention of electric vehicles or Smart Phones.

Paul Franke believes that the fundamental growth reasons for buying NVIDIA will quickly disappear next year, hence he is looking at chart patterns, which have lacked any momentum since autumn. He also stated that the price trend in the second half of 2024 looks almost the same as in 2018, when stock prices plummeted by about 60% by the end of the year.

Franke's analysis of the stock focuses on the similarities in chart patterns with 2018, stating that for investors in this soaring stock, history often repeats itself, and he is concerned that NVIDIA's decline will far exceed the expectations of traditional Wall Street views. He expressed pessimism about NVIDIA's ability to maintain an edge in the cyclical and highly competitive computer chip industry and maintains a strong sell rating on NVIDIA’s outlook for the next 12 months.

The momentum trading model is nearing exhaustion.

The daily trading chart of NVIDIA for the next 12 months drawn by Franke is as follows. It is noteworthy that the current price of $137 per share is actually below the high of $144 per share reached six months ago in June. The price has also fallen below the important 50-day moving average from December and is close to the 200-day moving average.

Since early November, the 20-day Chaikin Money Flow Index (a formula that reviews the accumulation trend of transactions over the past month) has remained flat to declining. This is the weakest buying interest trend of the year.

Another issue is that since late May, the On Balance Volume (measured by the highs and lows of closing prices added to or subtracted from the total daily trading volume) has remained flat. Typically, significant stock price increases are supported by strong OBV changes.

Finally, perhaps most importantly, the calculation of the 28-day Average Directional Index indicates a complete lack of conviction in price changes. This volatility indicator reviews six weeks of trading data and highlights a clear lack of buying interest.

2018

Today's price and momentum sequence are remarkably similar to the 12 months prior to October 2018. The chart below shows this period with the same momentum Indicators and basic chart parameters.

NVIDIA seems to have returned to the position of the second week of October 2018, when the stock began a trend towards a 60% crash in December.

The only real difference is that, compared to the experiences of 2018, the current pattern may be more fatigued and the momentum weaker. Today's CMF and ADX readings are even lower than six years ago, while the OBV pattern is almost mirrored.

For NVIDIA's Shareholders, the bad news for December 2024 is that the excitement of AI for a potential sentiment reversal will be more extreme, and the issue of overvaluation as well. Both scenarios could mean that, in the near future, the relationship between Volume and the imbalance with Buy Order flow may be much more severe than at the end of 2018.

The stock price could drop by 50% to 60%.

Franke stated that regardless of the global level of competition or economic activity, by 2025, NVIDIA's earnings growth rate and profit margin will almost certainly decline, with a slight decline this year compared to last year. The above inference is purely based on the law of large numbers (a mathematical concept that suggests that as scale increases significantly, it will inevitably slow the growth rate of the company). With the stock's Market Cap reaching an astonishing 3.4 trillion dollars, no other 'cyclical' business model in human history has had a nominal value higher than this. The only company that surpassed NVIDIA's proportion of 11% of the USA GDP on a 'relative' scale was Standard Oil before the government forced its breakup in 1911.

Franke believes that in the coming years, the growth rate of sales and EPS for NVIDIA is expected to slow significantly. The general view among Wall Street Analysts includes that the macroeconomic forecasts are favorable, tariffs on NVIDIA's products are limited, and the impact of AI chip competitors on performance remains weak. However, if any or all of these factors change, the Wall Street forecast numbers will be significantly exaggerated compared to actual Operation results.

In addition, Seeking Alpha's Algo ranking system continues to rate NVIDIA's valuation as 'F,' with the only positive data point being expectations for sustained strong profit growth. If this fundamental data wavers, stock prices may face significant drops during 2025-26.

Another concern for bulls is that over the past year, the insider selling to buying ratio has been 20:1, and in the last three months, this ratio has rapidly increased to 60:1, which includes Shareholding reductions by senior management and CEO Jensen Huang.

What are the positives at this stage? Franke believes that to break through the $150 per share mark for NVIDIA in the short term, it is necessary for NVIDIA's dominance in AI chips to remain unchanged, for the US stock market to rise overall again in the first few months of 2025, for the US economy not to be affected by destructive policy changes from the Trump/Republican government, and for the company's supply chain outside of Asia/Taiwan to remain stable.

While completely ignoring the chart momentum structure that will be exhausted by late December, the above assumptions might imply a lot. Therefore, Franke reiterates his view that prosperity will turn into recession, especially in the cyclical Semiconductors Industry, and continues to rate NVIDIA stock as a strong Sell for the 12-month outlook. He mentioned that if any of the aforementioned Call variables encounter issues soon, a decline in stock price of 50% to 60% cannot be ruled out.