Over the last two years, Nvidia (NVDA) has made a habit of delivering “beat and raise” earnings reports. With the chip giant reporting F1Q21’s financials after the close on Wednesday, May 25, are investors in for another treat? Not according to Susquehanna’s Christopher Rolland.
“Unlike recent quarters,” said the 5-star analyst, “we believe any significant beat and raise may be capped by Gaming headwinds.”
So, what are these headwinds constraining Nvidia’s biggest breadwinner?
Well for one, retail premiums above MSRP (manufacturer’s suggested retail price) for NVIDIA cards have “declined precipitously.” In mid-2021, they were at a peak of +130% but fell to +78% in January before dropping further to 23% right now. At the same time, “significant restocking” has taken place with retailers now having all major card families on the shelves.
The main factor behind these changes, according to Rolland, is down to the “reopening,” which heading into the print, presents a “potential intermediate-term narrative risk.”
Additionally, the analyst has previously stressed the risk of 2H22 being a “WFH PC hangover,” and Rolland believes the latest commentary from Intel/AMD bolsters his case.
That said, there is a counterbalance to the Gaming headwinds. While Gaming has always led the way at Nvidia, Data Center has steadily become almost as big of a revenue driver. In fact, Rolland expects a “strong result” for Data Center, believing that by now it has “grown to become even larger than Gaming.”
“Healthy underlying demand for NVIDIA’s products is being driven by hyperscale cloud computing, AI workloads, natural language processing, deep recommender models, and vertical Enterprise products,” Rolland elaborated.
While Rolland does not think another “substantial beat and raise” is in the cards, he also notes that given the shares’ uncharacteristic underperformance - trailing the SOX by around 17% year-to-date - there’s currently a “lowered bar for execution.”
All told, then, Rolland maintained a Positive (i.e., Buy) rating on NVDA along with a $280 price target. If correct, investors could be lining their pockets with a 67% gain. (To watch Rolland’s track record, click here)
Overall, of the 26 analyst reviews on file, 5 stay on the sidelines but all the rest are positive, making the consensus view on this stock a Strong Buy. The forecast calls for one-year gains of ~84%, considering the average price target clocks in at $308.26. (See Nvidia stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Nvidia has lost nearly half of its market value since its peak, subsequently leaving many investors wondering whether the stock provides an attractive entry point. The U.S.-based technology firm seems under-appreciated by the bulk of market participants. Thus, I'm bullish on the stock; here's why.
Recent Performance ExplainedNvidia stock's recent weakness is multifactorial. First of all, the company faced a trying semiconductor supply-chain, which has added inflationary pressure to its business model. The semiconductor days to delivery ratio recently reached 26.6, meaning that Nvidia's operational efficiency is doubted by many investors.
Furthermore, Nvidia stock has faced stock market factor pressure, which has caused a significant drawdown in some of the big technology names as a consequence of a growth to value rotation, with inflation being the catalyst of it all.
Nonetheless, investors have likely overreacted to the various systemic and idiosyncratic headwinds, leaving Nvidia stock undervalued, and attractive.
Nvidia's Market OverviewA large part of Nvidia's recent success is tied to the rise in artificial intelligence's use cases for enterprise and gaming solutions.
GPUs are integral for artificial intelligence applications pertaining to image recognition. Thus, Nvidia's flagship A100 Tensor Core GPU has made significant strides over the past few years. Although the company's competitors, such as Advanced Micro Devices (AMD) and Intel (INTC), provide GPUs at competitive prices, Nvidia is often seen as the "best-in-class" GPU supplier, thus providing the firm with product differentiation advantages.
Furthermore, CPUs have grown in stature over the past decade as the proliferation of time-series methods has stimulated demand for the concept. Nvidia's GeForce RTX 3080 is considered a viable option for enterprise solutions, which is a key driver for the company.
Previous Earnings & What To ExpectThe firm's fourth-quarter earnings report produced an earnings-per-share amount of $1.32, translating to a 70.32% year-over-year increase. Looking forward, the company's first-quarter results will be released on May 25, in which a strong print is anticipated.
Additionally, Nvidia's Beneish M-score of -1.75 is reasonably placed, suggesting that there aren't any signs of aggressive financial reporting on an ex-post basis. Lastly, Nvidia has a reputation of beating earnings as it's done so for fifteen out of its previous sixteen reported periods.
Hedge Fund SentimentHedge funds are bullish on Nvidia stock. By observing TipRanks' 13-F tracker, it's clear that hedge funds have turned a corner on their Nvidia sentiment. After an abrupt sell-off during the earlier stages of the year, hedge fund managers added a cumulative of 1.3 million shares to their portfolios in the past quarter.
Notable names among the buyers include Ray Dalio, Charles Clough, and Cory Whitaker.
Hedge fund holdings provide a solid overview of a stock's near-term prospects, as they have short-term mandates that incorporate active trading to maximize their profits. Thus, Nvidia stock's prospects are considered lucrative among some of the Wall Street's whales.
Valuation Metrics & Price LevelNvidia's recent sell-off has dragged the stock back into undervalued territory. According to TipRanks' valuation algorithm, Nvidia's price-to-earnings ratio (40.89x) is in mid-territory, and its forward price-to-earnings ratio (32.20x) is at the lower end of the spectrum, suggesting that the stock might be undervalued.
Furthermore, Nvidia's PEG ratio of 0.39x suggests that the company's earnings-per-share growth is robust and undervalued by market participants.
Lastly, Nvidia's 1-year relative strength of 39.14 conveys that the stock is borderline oversold, meaning that it provides a lucrative entry point for investors who're willing to take on the risk.
Wall Street's TakeMorgan Stanley (MS) is one of the big Nvidia optimists on Wall Street. According to analyst Joseph Moore, "The stock is a core holding; our approach is to at least maintain a market weighting in the stock, and look for spots for an overweight."
Turning to the rest of Wall Street, Nvidia earns a Strong Buy consensus rating based on 20 Buy and 4 Hold ratings assigned in the past three months. The average NVDA stock price target of $315.23 implies 88.83% upside potential.
The Bottom LineNvidia's recent stock capitulation suggests that investors are worried about the general economy, which has led to a selloff of high-beta stocks, such as Nvidia. However, matters have been blown out of proportion, and market participants could realize that Nvidia is a robust company with "best-in-class" product offerings.
Furthermore, key metrics, hedge fund buying, and Wall Street's price targets suggest that Nvidia is an undervalued stock that currently provides a lucrative entry point.
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