NVDA: Nvidia AI Boom Sparks Warning Bells as Pullback Risks Climb

July 18 Nvidia (NASDAQ:NVDA), the chipmaker powering the AI boom, is showing signs of an overheated rally, according to a Bloomberg report.

The stock’s 14?day relative strength index briefly topped 80 on Thursday, the highest reading since June 2024. The RSI is a technical momentum gauge that tracks the speed of recent price changes, and a reading above 70 often signals that a stock may be overbought.

Nvidia’s shares have climbed roughly 83% since early April, adding more than $1.9 trillion in market value. Yet history warns that extreme RSI levels can presage pullbacks: the last time Nvidia’s RSI surpassed 80, the stock slid over 20% in the following six weeks.

It’s definitely getting overbought, and while that doesn’t mean a reversal is imminent, this is something to be mindful of, said Jonathan Krinsky, chief market technician at BTIG.

The recent leg of the rally was driven by news that the U.S. government approved renewed sales of some AI chips in China, a development that could recover a large portion of the roughly $15 billion in data?center revenue at risk under previous export restrictions. As Nvidia heads toward what may be its eighth straight week of gains, investors will watch upcoming Big Tech earnings for signs of sustained AI spending.

This article first appeared on GuruFocus.