Nvidia's Stock is Approaching a 'Death Cross.' Should Investors Be Concerned?

For investors considering re-entering Nvidia Corp.’s stock, a technical pattern forming on the charts may serve as a warning sign, at least in the short term.

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This pattern, known as a “death cross,” has historically signaled further declines for Nvidia’s stock. The last two times this bearish signal appeared, the stock dropped another 40% before finding a bottom. Over the company’s trading history, stocks have continued to decline 75% of the time following the pattern’s emergence.

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A death cross occurs when the 50-day moving average (50-DMA), a widely used short-term trend indicator, falls below the 200-day moving average (200-DMA), which is seen as a key marker of long-term market trends. For Nvidia, this pattern could emerge for the first time in nearly three years, potentially as soon as this week—likely on Friday—based on the current movement of these averages.

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As of Monday, the 50-DMA was approximately $129.04, according to FactSet data, down slightly from $129.30 on Friday. Over the past five days, it has been declining at a rate of about 30 cents per day. Meanwhile, the 200-DMA has been gradually rising, reaching $127.68 from $127.64 on Friday, increasing by around six cents per day over the past week.

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While this trend suggests a looming death cross, there is still a possibility of reversal. Some analysts believe Nvidia’s upcoming annual GTC conference for developers, scheduled for next week, could act as a catalyst for further gains, potentially shifting the trajectory of the moving averages.

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On Friday, Nvidia’s stock surged 5.3% to close at $121.67. It has rebounded 13.7% from its six-month low on March 10 but remains down 18.6% from its record closing high on January 6.

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The most recent death cross for Nvidia occurred on April 20, 2022, when the stock closed at a split-adjusted price of $21.48. Prior to that, the stock had already fallen 35.7% from its record high of $33.38 on November 29, 2021. Following the crossover, Nvidia’s shares plunged another 47.7% before bottoming out on October 14, 2022.

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A similar scenario unfolded in late 2018. On November 13, 2018, Nvidia’s stock formed a death cross after already declining 31.1% from a record close set about six weeks earlier. Over the next six weeks, the stock slid another 36.1% before reaching a bottom.

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Since Nvidia’s initial public offering in January 1999, the company has experienced 12 death crosses. Of these instances, the stock declined further nine times, with an average post-crossover decline of 41% and a median drop of 36%. The severity of these declines varied widely, from a 6.5% drop after a May 4, 2012 crossover to a staggering 78% plunge following an April 24, 2002 death cross.

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The duration between the formation of a death cross and the stock reaching its bottom has also varied significantly. In some cases, Nvidia’s stock found a bottom within a week, while in others, the downtrend lasted as long as nine months.

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However, not every death cross led to additional losses. For example, when a death cross appeared on July 29, 2015, Nvidia had already bottomed two days earlier. Similarly, before the April 25, 2007 crossover, the stock had reached its low a month earlier. In another instance, when the death cross emerged on July 20, 2006, the stock bottomed just four days later.

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Despite the technical warning, Nvidia’s stock appears relatively inexpensive compared to analyst projections for per-share earnings over the next 12 months. The stock’s current price-to-earnings (P/E) ratio sits around 25.9, slightly above a recent low of 23.4 recorded earlier this week.

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In contrast, during the last death cross that triggered a significant decline, Nvidia’s P/E ratio was much higher, at 36.7. Meanwhile, during the 2015 death cross—when the stock had already found a bottom before the crossover—the P/E ratio was lower, at 22.3.

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While history suggests that death crosses often lead to further stock declines, valuation metrics may provide some reassurance to investors seeking long-term opportunities. However, given Nvidia’s past reactions to this bearish signal, traders should brace for potential turbulence in the weeks ahead.

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