NVDA with Nobias technology: Nvidia Shares Are Up 45% In A Month. Is The Stock Still Attractive?
Facebook recently rebranded itself as Meta Platforms Inc., putting the “metaverse” into the global spotlight. To most, this is still an abstract idea; however, the gist is that technological advancements in the augmented reality, the virtual reality, the artificial intelligence, and the semiconductor industries will enable humans to transcend reality as we know it, entering into a digitized mixed reality existence. Admittedly, this sounds like something from science-fiction.
Steven Spielberg recently portrayed a type of metaverse experience in his film, Ready Player One. His film was set in 2045 and frankly, that time-line seems to be in-line with the suggestions coming from Meta Platforms Inc. management, who acknowledge that their present day investments into the metaverse aren’t likely to pay off anytime soon.
However, the potential for long-term secular growth here appears to be massive, which is why Meta Platforms isn’t the only large-cap technology company investing heavily into metaverse related assets. And while we’ve highlighted the company formerly known as Facebook as the catalyst which has pushed the metaverse into the headlines, the fact is, it may not be the biggest beneficiary of this long-term growth trend.
Another large-cap technology company, Nvidia (NVDA), has been touted as a position winner in the metaverse space by Wall Street analysts this week, which has sent the stock soaring nearly 16.5% during the past 5 trading days alone.
During the last 30 days, NVDA shares are up 45.48%. Therefore, we wanted to take a look at this company to see what the credible authors that we track at Nobias Finance have had to say about the stock recently. Is NVDA a buy here sitting near all-time highs? Let’s see what the Nobias algorithm says.
NVDA Nov 2021
With regard to NVDA, a report in Investor’s Business Daily written by Nobias 4-star rated author, Patrick Seitz, who highlighted NVDA’s recent operational success and quoted the research related to NVDA’s metaverse ambitious which was written by Wells Fargo analyst Aaron Rakers, who also receives a 4-star credibility ranking by the Nobias algorithm.
It was Raker’s research note which played a large role in Nvidia’s 12% rally on Thursday. In Seitz’ piece he quoted Rakers as saying, "We see Nvidia Omniverse as a key enabler/platform for the development of the metaverse across a wide range of vertical apps — industrial, manufacturing, design & engineering, autonomous vehicles/robotics, etc. - Nvidia Omniverse Enterprise represents a significant platform expansion strategy for Nvidia, which also entails a deepening recurring software story."
Seitz went on to say that after NVDA’s Q3 report, “Rakers reiterated his overweight, or buy, rating on Nvidia stock and raised his price target to 320 from 245.” Seitz also touched upon the omniverse aspirations, saying that “Omniverse is an online platform that allows creators to collaborate in real time using physically accurate simulations and 3D renderings. Nvidia describes it as a "platform for connecting 3D worlds in a shared virtual universe." He concludes that Nvidia is tied for first place when it comes to the Investor’s Business Daily’s fabless semiconductor industry group, signifying his bullish opinion.
The metaverse isn’t the only growth driver that Nvidia is benefitting from right now. Harsh Chauhan, a Nobias 5-star rated analyst, recently published an article titled “Nvidia Is Doubling Down on a Massive Opportunity” and the opportunity that he is referring to is the gaming market.
Chauhan said, “The cloud gaming market is in its early phases of growth, and Nvidia has already moved into a dominant position in this multi-billion-dollar market that's expected to generate more than $6 billion in revenue by 2024.” He continued, saying that, “Nvidia's GeForce NOW cloud gaming service had more than 12 million members at the end of Sept. This is impressive considering that the number of paying cloud gaming subscribers is expected to hit 24 million by the end of the year.”
Chauhan believes that NVDA could have a roughly 50% market share in the cloud gaming market by the end of 2021 via its GeForce Now platform. In short, this is a subscription service which allows interested gamers to experience high-end gameplay on outdata devices.
Chauhan highlighted a note that the company posted on its blog, highlighting the benefits of the GeForce Now service. Nvidia wrote: “That means any underpowered PC or laptop — even with four-year-old integrated graphics — is instantly transformed into a gaming rig capable of displaying the hottest PC games in 1440p at 120 FPS with a compatible monitor that supports a refresh rate of 120Hz or higher.”
Chauhan describes the Nvidia’s cloud gaming operations, saying, “Powered by what Nvidia calls the world's most powerful gaming supercomputer -- the GeForce NOW SuperPOD -- gamers can now stream games to their personal computers or MacBooks at a resolution of up to 1440p and 120 frames per second. Meanwhile, owners of Nvidia's media streaming device -- SHIELD TV -- can stream games in 4K HDR at 60 frames per second, which they couldn't do earlier. The SHIELD TV allows users to stream video content to their televisions through apps. The GeForce NOW RTX 3080 membership can turn those TVs into a gaming system.“
Chauhan went on to highlight the high costs of high-end gaming hardware in the market today, which is only getting worse because of ongoing supply chain issues. He wrote, “As a result, it is difficult for gamers to lay their hands on an RTX 3080, and even if they manage to find one, they'll have to pay a heavy premium over the card's manufacturer's suggested retail price of $699. For instance, the average price of the RTX 3080 on eBay was more than $1,600 in the first two weeks of October.”
The GeForce Now service costs $100/year for a priority plan, which makes it all the more attractive to prospective gamers. This 5-star rated analyst believes that GeForce Now “can help Nvidia remain a top growth stock for a long time to come.” He concludes his piece saying, “Throw in the other major catalysts the company is sitting on, and it becomes easy to see why Nvidia's high growth rates could be here to stay.”
The issue with Nvidia is its valuation. Prior to its recent rally, Chauhan noted that the company was trading for 83x trailing earnings and 49x forward estimates. He called NVDA “an ideal bet for investors willing to pay a rich valuation for a high-growth company.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
However, NVDA shares have rallied nearly 22% since Chauhan’s piece was published and today, at $297.52, NVDA shares trade for approximately 71.9x Wall Street’s consensus earnings-per-share figure for Nvidia of $4.14 in fiscal 2022. This is a lofty premium, even if the stock manages to grow its bottom-line at a 66% clip this year analysts expect. And therefore, while 75% of the credible authors that we track who have covered NVDA have expressed a “Bullish” opinion, we want to highlight the fact that many of these reports were published before the most recent leg of the stock’s rally and when looking at the average price target posted by blue chip (4 and 5-star rated) Wall Street analysts that we track, there appears to be a lot of risk attached to shares at today’s levels.
The average price target amongst the credible analysts that Nobias Finance tracks is currently $246.36. Relative to NVDA’s nearly $300 share price, this represents downside potential of approximately 17.2%. Rakers is the only 4 or 5-star rated analyst that we track who has updated their opinion since the Facebook/metaverse hype occurred and it’s worth noting that his $320 estimate is the highest in our system.
This implies that other analysts could also increase their estimates as they factor in the company’s most recent data into their models. NVDA increased its sales by 68% last quarter and analysts remain very bullish on its prospects during the third quarter when it reports on November 17th. However, for the time being, for all of the company’s long-term growth prospects, it appears as though Nvidia shares may be overvalued (in the short-term, at least), which is a risk that bullish investors certainly want to consider before buying shares.
Disclosure: Nicholas Ward is long NVDA. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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