NVIDIA Corp. (NVDA) designs and manufactures computer graphics processors, chipsets, and related multimedia software with two main segments: the Graphics segment and the Compute & Networking segment. Founded in 1993, Nvidia is headquartered in California.
Nvidia is synonymous with high growth in revenue, earnings, and beating expectations, having a very strong track record of positive financial results.
Amid a global chip shortage, Nvidia Corporation delivered stellar financial results for the third quarter of the Fiscal Year 2022. With gains of nearly 140% in 2021, shares of Nvidia are trading at a high valuation.
The expectations are too high for growth to continue over the next few quarters and years. I am bearish on NVDA stock, as I consider it is trading at a very rich premium now. (See Analysts' Top Stocks on TipRanks)
A History of Beating EPS EstimatesNvidia has delivered 16 consecutive quarters of beating EPS estimates. This trend goes back to Q4 2017. Its EPS has been increasing for the past eight straight quarters.
TipRanks' Smart ScoreWhen looking at the TipRanks Smart Score rating system, Nvidia scores a Perfect 10.
This implies that NVDA stock will outperform based on key market factors. These factors include Wall Street analyst ratings, corporate insider transactions, financial blogger opinions, individual investor sentiment, hedge fund manager activity, and fundamentals, to name a few.
Third Quarter Results: A Beat on Earnings and RevenueEarnings are a critical catalyst that moves a stock, and Nvidia delivered a solid third-quarter 2022 earnings report, continuing its strong momentum in 2021.
Here are some key highlights from the quarter: "Record revenue of $7.1 billion, up 50% from a year earlier. Record Data Center revenue of $2.94 billion, up 55% from a year earlier. Record Gaming revenue of $3.22 billion, up 42% from a year earlier."
When you read about record revenue three times, you know it was a stellar quarter for Nvidia. The Refinitiv consensus expectations for adjusted earnings and revenue were $1.11 and $6.82, respectively. Nvidia reported adjusted earnings of $1.17 and revenue of $7.10 billion, respectively.
There was more good news as Nvidia raised its guidance, stating it is expecting around $7.4 billion in the current quarter, ending in January, higher than the analyst expectations of $6.86 billion.
However, analyzing its financial results showed that Nvidia is exploring growth in new dynamic markets such as Omniverse.
Jensen Huang, founder and CEO of NVIDIA, said that "Omniverse was a major theme at GTC. We showed what is possible when we can jump into virtual worlds. Omniverse will be used from collaborative design, customer service avatars, and video conferencing, to digital twins of factories, processing plants, even entire cities. Omniverse brings together NVIDIA's expertise in AI, simulation, graphics, and computing infrastructure. This is the tip of the iceberg of what's to come."
Omniverse is Nvidia's concept for the metaverse. A potentially tremendous market opportunity to explore and profit from.
As expected, the biggest market for Nvidia continues to be the gaming market. Another very strong market was Data Center revenue with a record $2.94 billion, up 55% from a year earlier and up 24% from the previous quarter. Professional Visualization, which relates to Omniverse, performed very well, with record revenue of $577 million, up 144% from a year earlier and 11% from the previous quarter.
Automotive revenue for the third quarter was $135 million, up 8% from a year earlier and down 11% from the previous quarter. It may seem such as a laggard sector for Nvidia.
Nevertheless, we should consider that a company with such diverse applications ranging from supply-chain logistics, cybersecurity, robotics, self-driving cars, climate science, and digital biology is expected to have some sectors that cannot keep up with the rapid growth of other hot sectors.
It's worth mentioning that Nvidia is even providing solutions for professional crypto mining operations, offering its dedicated GPU CMP HX. According to the company, this GPU is optimized for the best mining performance.
Valuation: The Biggest Hurdle for Investors NowNvidia shines at long-term growth for revenue, operating income, net income, and EPS. Nvidia's 10-year average growth for revenue, operating income, net income, and EPS are 16.8%, 36.4%, 32.8%, and 32%, respectively.
Analysts expect annual earnings growth of 16.3% for the next one to three years. NVDA's earnings are expected to grow faster than the U.S. market in the same period (14.4% per year).
Considering the valuation for this growth stock, though, is what makes Nvidia too risky now, implying it is too expensive. NVDA is expensive based on its P/E Ratio (97.2x) compared to the U.S. market (17.7x). NVDA is expensive based on its PEG Ratio (6x). Ideally, value stocks have a PEG ratio under 1.0x.
Finally, NVDA is considered to be overvalued based on its P/B Ratio (33.5x) compared to the U.S. Semiconductor industry average (4.9x).
Wall Street's TakeTurning to Wall Street, NVDA earnings a Strong Buy consensus rating, based on 22 Buys and two Holds. The average Nvidia price target of $359.09 implies 14.8% upside potential.
Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.
Nvidia (NVDA) has undergone one of the most spectacular rallies any stock has seen over the past few years, with its shares hitting new record highs at a crazy rate. The company has benefited greatly from the growing adoption of cryptos, as demand for its graphics card skyrocketed following its new utilization in mining coins.
Simultaneously, the industry's ongoing supply chain issues and shortages have further widened the disproportionally higher demand to supply gap, providing Nvidia with amazing pricing power.
The company has been trying to expand its total production capacity in an attempt to meet the underlying demand, which along with a consistently higher price mix, has resulted in rapidly growing revenues and juicier margins by the quarter.
While I adore the company and believe its products will play a key role in digitalization and AR/VR applications in the coming years, I remain neutral due to the stock's rather rich valuation.
The company recently reported a very strong quarter, proving once again why its premium valuation could be somewhat justified. That said, with shares again surging in the coming days, the future upside for current shareholders has been rather compressed, in my view. (See Analysts’ Top Stocks on TipRanks)
Q3 ResultsFor its Q3 results, Nvidia recorded revenues of $7.10 billion, 50% higher compared to the prior-year period, and up 9% from the previous quarter. With economies of scale kicking for the semiconductor giant, Nvidia's margins have constantly been expanding.
Gross margins were 67%, 30 basis points higher compared to Q2, and a whopping 150 basis points higher year-over-year. With record revenues and expanding margins, operating income and net income surged. Net income grew 13% sequentially and 62% year-over-year, and EPS climbed to $1.17.
ValuationOn the one hand, Nvidia's growth is nothing but impressive. Being an industry leader, the company is set to benefit tremendously from numerous trends, some of which are still in their infancy. These include networking, EVs, robotics, quantum computing, and AR/VR platforms like Meta Platfroms' (FB) developing Metaverse. For example, the company recently announced Omniverse Avatar, a technology platform for generating interactive AI avatars.
Furthermore, with the crypto-economy gaining increased adoption and coin trading near all-time highs, it's highly unlikely that the ongoing shortage will be resolved anytime soon, suggesting that Nvidia's pricing power will remain very powerful in the medium term.
That said, the stock is currently trading at a trailing P/E of 118, and a forward P/E of 64.1. For this reason, Nvidia's total returns could be rather limited for current investors.
Additionally, capital returns remain tiny to compensate current investors from a potential valuation compression. The company's dividend remains trivial and serves mostly as a token, while it's questionable if buybacks at the stock's current valuation levels would serve investors.
Wall Street’s TakeTurning to Wall Street, Nvidia has a Strong Buy consensus rating, based on 22 Buys and two Holds assigned in the past three months. At $359.09, the average Nvidia price target implies 4.7% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
The recent fiscal third-quarter results from the giants of the semiconductor industry, including Nvidia and AMD, left investors cheering. At the same time, Intel's (INTC) investors were disappointed by the company's mixed bag of third-quarter results.
It is interesting to see the different directions taken by these semiconductor companies, with Intel investing more in its foundry business while AMD continues to see higher traction in its third-generation EPYC processors. In contrast, Nvidia continues to expand its artificial intelligence (AI) platform offerings by venturing into virtual reality with its Omniverse platform.
Using the TipRanks Stock Comparison tool, we will compare two such chip-making companies, Nvidia and AMD, and examine how Wall Street analysts feel about these stocks.
Nvidia (NVDA)Nvidia’s outstanding Q3 results and the emerging details about the Omniverse seemed to have spiked investors’ interest in the stock. Indeed, the stock has jumped 8.5% in the past five days.
The company posted record revenues of $7.1 billion in Q3, surpassing consensus estimates of $6.83 billion. The rise in revenues was fueled by a surge in demand for Nvidia’s AI platform, especially across hyper-scale and cloud computing.
Adjusted earnings came in at $1.17 per diluted share, an increase of 60% year-over-year, beating the consensus estimate of $1.11.
Jensen Huang, Nvidia’s Founder and CEO, referred to the Omniverse virtual reality (VR) service offering in its press release, saying, “Omniverse will be used from collaborative design, customer service avatars and video conferencing, to digital twins of factories, processing plants, even entire cities.” (See Analysts’ Top Stocks on TipRanks)
Referring to the new Omniverse offering, Jeffries analyst Mark Lipacis said he is “impressed with the company's ability to introduce new applications for its parallel processing ecosystem.” As a result, the analyst increased his estimate for earnings per share in 2025 from $12.50 to $16.40 “to incorporate revenues from its new Omniverse virtual reality service offering.”
Moreover, the analyst expects that the potential Omniverse total addressable market (TAM) from creator licenses could be worth $80 million, based on NVDA’s estimate of charging $2,000 annually for each user for a creative development license. The company expects to charge $1,000 every year per avatar and anticipates its user base could be 40 million.
Analyst Lipacis believes that “virtual reality will find its way into numerous other applications not yet fully comprehended by the market.”
As a result, the analyst raised the price target for Nvidia from $260 to $370 (12.2% upside) and reiterated a Buy on the stock.
Lipacis also felt heartened by CEO Huang’s belief that the success of the Omniverse over the near-term “will be driven by 1) developer support, 2) enterprise adoption, and 3) degree of collaboration among creators.”
The rest of the Street echoes Lipacis’s view, with a Strong Buy consensus on Nvidia, based on 22 Buys and 2 Holds. The average Nvidia price target of $359.09 implies 8.9% upside potential to current levels.
Advanced Micro Devices (AMD)Shares of AMD have soared 29.7% in the past month, driven by strong Q3 results and some key announcements at its Accelerated Data Center (ADC) Day earlier this month. According to Jeffries analyst Mark Lipacis, a key announcement by AMD on ADC day was that Meta Platforms (formerly Facebook) (FB) would be AMD’s customer when it comes to EPYC Central Processing Unit (CPUs).
The analyst views this announcement as “significant because FB strives to build environmentally conscious datacenters by using direct and evaporative cooling systems and is therefore highly focused on higher performance / Watt from its processors.”
Lipacis perceives FB’s selection of AMD as a “signal that AMD's Zen 4 CPU (Genoa) materially outperforms Intel's CPU offerings on this metric.”
At its ADC Day, according to the analyst, the chip company also unveiled a 3D chiplet technology for its EPYC server CPU, available in the first quarter of next year. Besides for this, AMD also announced Genoa and Bergamo (Zen 4) products on 5 nanometers (nm) to be launched next year and in the first half of 2023.
Genoa and Bergamo will have a high core count, ranging from 96 cores to 128 cores. Analyst Lipacis had written in another report that higher core counts are critical for efficient computing of cloud service providers (CSPs). (See Top Smart Score stocks on TipRanks)
Furthermore, the analyst pointed out that considering Intel’s Ice Lake server processor is at 40 cores, Lipacis believes that “AMD continues to gain server CPU share from Intel.”
The analyst added, “FB selecting AMD is a significant validation of AMD's CPUs, as FB focuses on environmentally conscious DC [data center] cooling systems, and consistent with our accelerating [market] share gains thesis for AMD.”
As a result, the analyst reiterated a Buy and a price target of $145 (6.7% downside) on the stock.
The rest of the Street has sided with Lipacis with a Moderate Buy consensus on AMD, based on 14 Buys and 8 Holds. The average AMD price target of $141.95 implies 8.6% downside potential to current levels, suggesting that the stock could have overshot its valuation.
Bottom LineWhile analysts are bullish about Nvidia, they are cautiously optimistic about AMD. It remains to be seen how Nvidia's foray into Omniverse plays out.
In contrast, AMD seems to be snapping up Intel's market share with its EPYC range of processors and continues to innovate further.
Based on the upside potential over the next 12 months, Nvidia does seem to be a better Buy.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.