The Escape From Once-Beloved Tech Stocks Continues

Editor's note: Strong earnings don't always mean a rising stock price. When expectations are extremely high, even great results can disappoint investors. In this issue, Ethan Goldman of our corporate affiliate Chaikin Analytics explains why strong earnings led to a falling stock price for America's largest chip leader – and how the Chaikin team's system can help you spot these warning signs ahead of time.

You likely know the four most dangerous words in investing...

"This time is different."

And over the past months, things have in fact been... not different.

Nvidia (NVDA) released its blockbuster fourth-quarter earnings report on February 25. Of course, the chip titan at the heart of the AI boom made massive amounts of cash last fiscal year.

Nvidia reported revenue of about $216 billion for the full period – a 65% jump from the previous fiscal year.

And it's 8 times the amount of revenue the company made just five years ago.

So it's hard to say that Nvidia isn't driving continual growth.

Under normal circumstances, growth like that would send a stock soaring. But for the largest company on the stock market, the opposite happened...

Nvidia grew quickly in after-hours trading. But just two days later, the stock was down more than 9%.

And regular Chaikin PowerFeed readers likely know why...

Nvidia Faced Strong Headwinds Before Its Earnings Report

I warned about the headwinds Nvidia faced in early February...

We all saw other tech giants in the field report massive earnings beats – only to have their stocks pummeled by weary investors.

You'll also recall that the Power Gauge had previously flashed four separate sell alerts for Nvidia in recent months.

The Power Gauge is a tool we use at Chaikin Analytics for analyzing the market. It gathers investment fundamentals and technicals into a simple rating of "bullish," "neutral," or "bearish."

And since February 6, the stock has traded mostly sideways. It closed that day at $185.41 per share. Yesterday, NVDA shares closed at $175.64.

I also noted that the "smart money" on Wall Street had been wary of the stock during most of January – and that's still the case now.

Meanwhile, Nvidia's relative strength versus the S&P 500 Index has still been mostly weak.

The chart below tells the story...

You'll also notice that Nvidia's stock has struggled to move above its long-term trend line. That happened just one time during the past three months – the day Nvidia reported its earnings after the markets closed. And that didn't last long.

But we know what happened next, folks...

Nvidia fell hard the next two days. And the drop put the stock back below its long-term trend line.

Today, Nvidia still gets a "neutral+" overall grade in the Power Gauge.

To be clear, "neutral+" isn't a bad rating. It simply refers to a "bullish" or better stock that trades below its long-term trend line – like Nvidia.

But as I just said, Nvidia hasn't managed to stay above its long-term trend line recently.

And the stock's growth leaves a lot to be desired. Over the past three months, it's down roughly 7%.

That's worse than the nearly 5% loss for the State Street SPDR S&P 500 Fund (SPY) over the same time frame.

Put simply, the Power Gauge says that Nvidia isn't a bad stock right now. Our system doesn't give it an outright "bearish" rating.

But the stock's "neutral+" rating and failure to keep its price above its long-term trend line mean that you can find better opportunities for your money out there.

Good investing,

Ethan Goldman

Editor's note: Later today, Marc Chaikin, CEO of our corporate affiliate Chaikin Analytics, will share what he calls the most important bear market update of his career – including the exact day he says investors need to move their money by. After calling the 2020 and 2022 market crashes, he now warns a dangerous "bear market window" is about to open.