In the exciting universe of semiconductors, few names generate much hype, which includes Nvidia. What was once merely a graphics card staple for gamers, it’s become the chip backbone of the AI boom. Although, with great power (and a jaw-dropping market cap) comes great responsibility and scrutiny.  Nvidia stock is trading at $131.29 as of May 26, down 1.2% over the last 24 hours. While the small drop may be raising investor eyebrows, it follows an unprecedented rally, Nvidia has jumped over 50% from its April lows. This is a testament to investors’ strong appetite for exposure to the artificial intelligence (AI) boom as well as the company’s central role in fueling next-generation data centers.

Technically, Nvidia is still in a good position. The stock is presently sitting above both its 50-day and 200-day simple moving averages (SMAs) at $114.79 and $126.12. This positive alignment indicates sustained upside pressure in the near term, at least technically.

Caution of Overbought Signals

Overall, there might be caution in order. Relative Strength Index (RSI) has crossed the 70 level, at present reading 70.7, usually this is an indication that a stock is moving into overbought levels. In the past, such high RSI readings have typically been followed by price consolidation or near-term pullbacks in high-momentum names such as Nvidia.

As long as the MACD histogram is still in the green, it indicates that the bullish sentiment is still firmly in place. On the other hand, the danger of a pullback comes into play if Nvidia does not overcome key resistance levels. The nearest resistance stands at $136.35, expected with further supply around the psychological $140 barrier and near the recent high of $149.42. A technical support is found on the downside at the 200-day SMA of $126, further down at $115 and $96.30. A breakdown below $126 would signal the start of a near-term correction.

Projection of Q1 Earnings & Geopolitical Risks

Investors are anticipating Nvidia’s next Q1 FY2025 earnings report, scheduled for May 28. Wall Street is hoping for record-breaking results, as the estimated revenue is $43.3 billion, which is a whopping 66% year-over-year growth, and earnings per share (EPS) is set at $0.88, a 44% annual increase from the same duration of last year. The growth in financial performance is fueled by an ambitious demand for Nvidia’s GPUs that are vital for training and executing AI models. Key customers are cloud hyperscalers and worldwide tech giants creating AI infrastructure at unprecedented scale.

However, the geopolitical risks have a long reach, as U.S export controls on AI chips to China have already affected Nvidia’s foreign business. Sales of the H20 chip, designed especially for Chinese customers, to meet U.S requirements have been paused. CEO Jensen Huang recently admitted that such controls could cut revenues by as much as $15 billion, highlighting the significance of the Chinese market.

China’s contribution to Nvidia’s overall revenue has fallen from 17% to 13% year-on-year, this is a concrete indicator of policy limitations as well as changing trade dynamics. Nevertheless, the firm is actively pushing its international presence through AI-driven collaborations across areas such as the Middle East, where high-performance computing continues to be in high demand.

Expected Volatility

With the combination of technical overbought conditions and macro uncertainty, Nvidia shares look composed for short-term volatility. The next earnings report may be a critical catalyst, either prolonging the current rally or initiating a selloff. A solid EPS beat, particularly accompanied by positive forward guidance, can drive Nvidia above near-term resistance levels, possibly retesting the $149.42 high point. On the other hand, any evidence of decelerating growth or defensive commentary, especially regarding China headwinds or hyperscaler slowing demand, is likely to induce a retreat to the $126 support level or lower, targeting $115.

In contrast, sentiment towards Nvidia remains generally positive. Oppenheimer reaffirmed its “Outperform” rating on the stock last week, with a price target of $175, around 33% above where it’s trading now. The firm’s new AI infrastructure contracts in markets such as Saudi Arabia have also served to bolster investor confidence.

Risk Persists

Nvidia’s performance is nothing less than phenomenal, but spectacular rallies can be fragile. As much as the fundamentals are robust and AI winds remain benign, the market hangs precariously on the edge of expectation. With earnings imminent and geopolitical tensions ongoing, investors would do well to buckle up.

Nvidia is both a tech giant and a market sweetheart, surfing the AI wave with confidence. Yet, amidst bull charts and billion-dollar profit estimates, the recent pullback in the stock is a reminder that no climb lasts forever. Indeed, Nvidia is redefining the future of computing, but its ride will nevertheless be driven by old-fashioned fundamentals and modern risks. Whether Nvidia breaks up or cools down, volatility can make or break the game.