Is NVIDIA's Stock Rally Overextended? A Technical and Valuation Reality Check

The tech sector's darling, NVIDIA (NVDA), has surged to dizzying heights on the back of AI-driven demand, but investors are now asking: How much higher can it go? With the stock at $142.63 as of June 9, 2025—up 0.64% on the day—analysts are scrutinizing whether the rally has reached an overextended point. Let's dissect the technicals, valuation, and risks to determine if this is a moment to lock in gains or hold for more upside.

Technical Analysis: Momentum vs. Overbought Concerns
NVIDIA's technical indicators present a mixed picture. The stock is trading comfortably above its 5-day ($134.53), 50-day ($134.99), and 200-day ($121.39) moving averages, signaling a strong upward bias. The MACD line at 9.31 further supports a bullish trend, with the histogram suggesting sustained momentum.
However, the 14-day RSI at 62 raises a caution flag. While it's below the overbought threshold of 70, the reading is elevated and could signal short-term vulnerability. Historically, NVDA has seen corrections when the RSI exceeds 65, with the stock often retreating to key support levels.
Valuation Sustainability: A High Bar to Clear
NVIDIA's trailing P/E ratio of 56.13 is a stark reminder of its growth ambitions—and the expectations baked into its price. While this is below its 2023 peak of 138.75, it remains 2.5x higher than the semiconductor sector average (22.94 as of June 2025).
Comparing NVDA to peers:
- AMD (AMD): P/E of 84.81 (reflecting its own AI chip bets).
- Intel (INTC): P/E of 33.21.
- Taiwan Semiconductor (TSM): P/E of 24.64.
NVIDIA's premium is justified by its AI dominance, but the risk lies in whether its revenue growth can keep pace with these lofty valuations. The company's trailing revenue growth of 69.18% (vs. the sector's 11.01%) is a tailwind, but a stumble in data center demand or AI adoption could trigger a valuation reckoning.
Near-Term Risks vs. Long-Term AI Growth
Short-term risks:
- Valuation pullback: If growth slows, the P/E could contract. A reversion to the sector average would imply a ~50% drop in the stock—a scenario unlikely in the near term but a critical long-term concern.
- Market volatility: NVDA's 52-week range ($86.62–$195.95) highlights its sensitivity to macroeconomic shifts. A Fed rate hike or tech sector rotation could test support near $139.
Long-term tailwinds:
- AI adoption: NVIDIA's leadership in generative AI chips and software platforms positions it to capture the $1 trillion AI market by 2030.
- Data center demand: The shift to AI infrastructure remains in its infancy, with companies like Microsoft and Amazon Web Services ramping up GPU purchases.
Actionable Insights for Investors
- Profit-taking opportunity: Investors with gains above $150 should consider trimming positions. The next resistance zone at $153 (near its 52-week high) may be tough to breach without earnings catalysts.
- Hold for growth: Bulls should keep a close eye on the August 27 earnings report. A beat on AI revenue targets could propel NVDA toward analyst estimates of $175.
- Set stop-losses: Below $139, the stock risks a deeper correction. Use trailing stops to protect profits.
Conclusion: A High-Wire Act
NVIDIA's stock is a masterclass in growth investing, but its current valuation and technicals suggest it's dancing on a tightrope. While the long-term narrative remains compelling, the near-term risks of overextension—particularly at a P/E of 56—mean investors must be vigilant. For now, the upside still outweighs the risks, but this is a stock to own only if you can stomach volatility and have faith in AI's exponential future.
Final advice: Ride the momentum, but don't forget to secure gains along the way.
Comments
No comments yet