NVDA with Nobias Technology: Case Study on Nvidia Corporation
The last report we published was focused on Micron Technology’s recent earnings report, its updated guidance, and the prevailing bullish sentiment that the Nobias credible authors and analysts had on the company heading into the quarterly release. In that article, we mentioned that even though MU posted a mixed report and provided guidance which showed slowing growth, the stock was only down slightly in the after hours session. It turns out the market’s sentiment surrounding MU soured overnight and Micron ended up trading down nearly 3% during the trading session on Friday. Furthermore, the weak guidance provided by Micron resulted in an industry-wide sell-off in the semiconductor space, causing many of the largest companies to post outsized losses, driving share prices, in several cases, down to new 52-week lows.
One such company that was caught up in the MU inspired sell-off was Nvidia (NVDA). NVDA and MU aren’t an apples to apples comparison, because while MU produces chips related to memory, NVDA is focused on high-end hardware, largely related to gaming, artificial intelligence, automation, and data center applications. Yet, NVDA was down 4.20% on Friday, regardless.
The stock closed the trading day at $145.23, slightly above its 52-week low of $143.92. NVDA shares are now down 51.78% on a year-to-date basis. They’re now down 58% from their 52-week highs. This share price weakness from NVDA has come as a surprise to many investors due to the fact that in recent years, NVDA has been one of the very best performing stocks in the entire stock market.
NVDA Jun 2022
On 12/31/2018, Nvidia shares were trading for $34.05. They rose by roughly 73% in 2019, closing the year at $59.02. Then, the shares grew by another 121% in 2020, closing that year at $130.55. In 2021, that positive momentum continued, with NVDA posting triple digit growth again, rising by 125% to $294.11. Yet, all of this has changed in 2022.
Some of the negative sentiment surrounding NVDA is related to the risk-off investing environment that we’re living through right now with interest rates on the rise which has damaged demand for long duration risk assets.
Nobias 4-star rated author, Sirisha Bhorgaraju, highlighted this in a recent article that she published on NVDA. Bhorgaraju wrote, “Investors are looking for safer bets and have dumped several tech names over demand concerns amid the ongoing macro uncertainty and high inflation.”
When NVDA posted its Q1 earnings in late May, the company beat Wall Street consensus estimates on both the top and bottom-lines. NVDA’s growth rate remained very strong, with revenues increasing by 46.3% on a year-over-year basis during Q1. Bhorgaraju noted that NVDA’s first quarter results were “better-than-anticipated”; however, she said that “Nvidia failed to impress investors due to its weak second-quarter guidance” and with Micron’s forward growth expectating falling lower than expectations as well (due to macro pressures) investors are fearing growth headwinds playing out here with NVDA as well. In her article, Bhorgaraju said, “Investors are also concerned about the extent to which the crash in cryptocurrency will impact the crypto-mining driven demand for Nvidia’s GPUs.”
Bitcoin continues to struggle, trading below the $20,000 threshold, currently down 59.42% on a year-to-date basis. Other digital currencies are performing much worse on a year-to-date basis. Ethereum, for instance, is down by approximately 72% on a year-to-date basis. And, NFTs (non-fungible tokens) are faring even worse.
The Guardian published an article titled, “NFT sales hit 12-month low after cryptocurrency crash” on Saturday, July 2, 2022, which stated: “Sales of NFTs totalled just over $1bn (£830m) in June, according to the crypto research firm Chainalysis, their worst performance since the same month last year when sales were $648m. Sales reached a peak of $12.6bn in January.”
Nathan Reiff, a Nobias 4-star rated author, also recently published an article which put a spotlight on the poor performance of crypto assets and the negative spill-over effect that this is having on semiconductor stocks like Nvidia.
Reiff wrote, “Cryptocurrencies have shed about two-thirds of their total market capitalization since reaching a high in November 2021, and even dominant virtual currencies like Bitcoin have seen prices plunge. The crash is being fueled by several factors driving investors away from riskier assets, including rising interest rates, the Russian invasion of Ukraine, and inflation.” He continued, “But the impact of plummeting crypto is not confined only to holders of digital tokens. As crypto prices have fallen, so too have the prices of hardware and other equipment commonly used in the digital currency industry for mining and other functions.”
Specifically regarding headwinds related to NVDA, Reiff stated, “As of a June 19 report by tech data analytics firm 3DCenter, AMD's current-generation graphics cards, also called GPUs, sell for about 92% of MSRP. That's a 10 percentage-point decline in under a month. NVIDIA's comparable GPUs have also dropped, but at a slower rate.”
Regarding the relation between crypto mining and GPU sales, he said, “GPUs have been used in the process of mining virtual currency tokens and have been in short supply at times during the crypto boom. Demand for GPUs may fall if investors turn away from cryptocurrencies or if energy-conscious crypto developers increasingly seek more efficient ways of generating new tokens.” But, as he states, NVDA has a chance to bounce back from this recent sell-off because, “As interest in GPUs for cryptocurrency mining wanes, customers seeking these products for other applications, including gaming, may drive demand instead. That may favor Nvidia's products. Some rankings have placed NVIDIA GPUs higher on best-seller lists for gaming compared with other makers.”
This sentiment is shared by Bank of America securities analyst, Vivek Arya. Even as poor crypto-related demand could hurt NVDA GPU sales moving forward, Bhorgaraju highlighted the recently expressed bullish outlook for NVDA by Arya, who recently listed NVDA as a top pick in the semiconductor industry.
Regarding Bank of America’s most bullish semi selections, Arya said, “Our top picks serve end-markets where we expect spending/content growth drivers to be most resilient, such as in cloud computing/AI, high-end industrial, EV/advanced driver assist systems and in rising chip complexity.”
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.
In other words, NVDA’s leading position in several areas of the market the continue to benefit from secular tailwinds, despite the macro pressures that exist in the current marketplace, should continue to drive growth and therefore, share upward price movement, over the longer-term.
Bhorgaraju concluded her bullish article by saying, “Nvidia is expected to face near-term headwinds due to macro challenges, but most of the Wall Street analysts continue to be optimistic about the company’s growth prospects in the years ahead. This is based on the strong demand in the firm's key end-markets, including gaming, data centers, automotive, AI applications, and the multiverse.”
Overall, the majority of credible authors and analysts that Nobias tracks offer a similar bullish sentiment for NVDA shares. 84% of recent article published by credible (4 and 5-star rated) authors have expressed a “Bullish” bias for NVDA shares.
Right now, the average price target that the credible Wall Street analysts that we track (once again, only individuals with 4 or 5-star ratings) have on NVDA shares is $254.78. Today, NVDA trades for $145.23. Relative to this share price, that $254.78 average analyst price target represents upside potential of approximately 75.4%.
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.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.