Artificial intelligence stocks, including chipmaker Nvidia (NVDA), Microsoft (MSFT), and C3.ai (AI), soared in 2023, outperforming the S&P 500 by a considerable margin. With gains north of 200% year to date, two of these stocks stand in heavily overbought territory.
Barclays strategists, Venu Krishna and Emmanuel Cau, have called any pullback a reason to buy, in a note recently.
According to the price charts, the pullback may happen sooner rather than later.
Picks for you
1. Nvidia (NVDA)
Leading chip manufacturer Nvidia has taken advantage of the AI frenzy, providing its graphics chips for data centers, as well as for processing large language models and rendering complex 3d environments.
The company also develops platforms that can power autonomous driving. Even Elon Musk said Tesla (TSLA) is using Nvidia hardware for its self-driving training systems during Tesla’s Q2 earnings call.
After a 209% gain this year, the stock price may be due for a pullback.
Key levels to watch
- First major support: $435
- Second major support: $400
Nvidia’s daily chart shows the surging stock price year to date. The patterns, however, paint a different picture.
With the price making higher highs in June and July, the MACD indicator diverges, making a lower low.
Combined with a classical bearish harami pattern, which is an indicator of a price reversal in a bull price movement, the chart shows a high probability of a price reversal to $435 and $400.
The weekly chart shows the price hovering in the overbought territory since February of this year.
Keep an eye on the weekly candle. If it closes below $410, we could see a move to $350 in the coming weeks.
2. Microsoft (MSFT)
Microsoft is known for its software suite but lately, it got a lot of buzz thanks to its partnership with OpenAI, the creator of ChatGPT.
The company has already integrated ChatGPT into its search engine Bing, its web browser Edge, and its Azure cloud infrastructure service.
Even though the company gained 43% this year, lower than Nvidia and C3.AI, the price may be in for a healthy pullback.
Key levels to watch
- First major support: $340
- Second major support: $325
Source: StockCharts.com
The daily chart shows a bearish divergence between the price and the MACD indicator. To complement a price-pullback scenario, the price has formed the three black crows pattern, which is a price reversal pattern in an uptrend.
The support price of $325 is a realistic retrace scenario.
The weekly chart shows a double top around $340, with the Stochastics hovering in overbought territory since April 2023.
The major catalyst, however, that will either launch the price to all-time highs or pull it lower is Microsoft’s earnings report, which comes out on July 25.
H3 3. C3.ai (AI)
This is the most pure-play AI stock out of the three as C3.ai provides AI software solutions to businesses. Some of its portfolio includes AI tools for accelerating software development, and reducing expenditures as well as providing its own generative AI suite to customers.
The company saw a soaring stock price this year, returning 243% to investors year to date.
Key levels to watch
- First major support: $31.5
- Second major support: $20
AI’s daily chart shows a price convergence within a symmetrical triangle. This has proven to be somewhat of a neutral pattern, meaning the price can break on either side.
The Stochastics indicator shows a steady decline since mid-June, pointing to a break lower. Should the price break the lower side of the triangle pattern, we could see a move to $20 in the coming weeks.
Despite the spectacular climb since the beginning of the year, the weekly chart confirms the potential for a pullback. In mid-June, the price had already retreated by 27% and failed to recover the losses.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
