Nvidia vs. AMD: The Charts Pick the Winning Stock

Nvidia components are shown at a trade fair in Paris in June. (THOMAS SAMSON/AFP via Getty Images)

Stock in Nvidia, the only company that now holds a $4 trillion valuation, is starting to show signs of technical fatigue, while the rival chip maker Advanced Micro Devices is gaining strength.

The daily chart below indicates Nvidia could be heading for a retest of a former breakout level, near a cup-base pivot at the round $150 mark. That level proved formidable in both November and January, marking significant resistance as the stock failed to rise above it both times.

It took until June for the stock to decisively cross that line. Shares were at $173.50 on Wednesday afternoon.

Dubious candlestick-chart action adds to the cautionary tone. Back-to-back doji candles, often a signal of changes in a prevailing trend, emerged on Aug. 11 and Aug. 12, followed by a bearish engulfing candle on Tuesday. That combination raises red flags.

Perhaps more significant is that the stock’s next move was downward. That provides confirmation that sellers are gaining control, at least in the short term.

Importantly, a pullback to $150 wouldn’t violate the stock’s broader uptrend. Instead, it could serve as a healthy reset, laying the groundwork for the next leg higher, assuming support holds.

Still, there is a growing risk of a bearish evening-star pattern forming on the weekly candlestick chart. The setup, a classic three-candle reversal signal, begins with a strong, up green candle, followed by a down red candle. It concludes with a third candle that confirms the reversal with downside follow-through, or a deeper decline.

It is a rare pattern that has a reputation for marking the start of deeper corrections. The last similar setup occurred during the week ended Feb. 8, when the stock fell 7%, ahead of a $30 slide to Nvidia’s April lows.

Nvidia has posted gains in 16 of the past 19 weeks, so the current rally may have gone too far. Shares could be poised to take a breather, or a fall. Traders should watch the remainder of the week closely for confirmation.

At the same time, Advanced Micro Devices has quietly outperformed Nvidia over the past six weeks.

For much of the year, the two stocks traded in strong correlation, but that relationship started to diverge in mid July as Advanced Micro Devices began to show relative strength. While it is too early to call it a sustained shift in leadership, the change is notable.

On a three-month basis, AMD has surged 42%, compared with Nvidia’s 27% gain. Over the past month, Nvidia has slipped 1%, while AMD has added 3%, a modest but telling divergence.

Whether the outperformance persists remains to be seen, but in a market where investors moving money among leading stocks can signal bigger shifts, this is a relationship worth monitoring closely.

Write to Doug Busch at douglas.busch@barrons.com