Case Study on Nvidia (NVDA) with Nobias technology
Nvidia pre announced its second quarter earnings last week, missing analyst estimates, which caused its stock to fall. On a year-to-date basis, NVDA shares are down by 37.89%. However, during the last month, Nvidia has rallied alongside the broader market, rising by 23.89%. And, despite the recent quarterly miss, the credible analysts that Nobias tracks believe that NVDA’s recent rally is likely to continue.
Sweta Killa, Nobias 5-star rated author, touched upon NVDA’s Q2 struggles in a recent article at Nasdaq.com writing, “Nvidia slashed its revenue guidance to $6.70 billion for the fiscal second quarter from the previous forecast of $8.10 billion on weak gaming-chip sales. Notably, gaming revenues dropped 33% from the year-ago level and 44% from the prior quarter. The gaming industry, which is largely considered to be recession-proof, is started to weaken as consumers weigh purchases of discretionary items such as video-game consoles.”
Killa continued, “The move came after Intel Corp. INTC, Qualcomm QCOM and Sony Group forecast weak sales on demand concerns for personal computers and phones”. In other words, the data points towards the current market environment being tough for the major semiconductor players, across the board.
The Value Portfolio, a Nobias 5-star rated author, published a post-earnings update on NVDA which highlighted the company’s recent struggles. The author wrote, “Nvidia (NASDAQ:NVDA) is back down to a $430 billion market capitalization, and down almost 50% from its 52-week highs, as the company announced incredibly weak preliminary earnings.”
NVDA Aug 2022
Regarding the company’s relatively poor results, The Value Portfolio wrote, “The company is announcing revenue 20% below its guidance combined with a more than 20% drop in gross margin. That double impact is from operating expenses remaining roughly constant, meaning that profits are expected to be fairly minimal.”
But, the author continued, “Despite the company's tough earning guidance, there is some glimmer of hope.” They said, “The company's datacenter business has continued to outperform. In the company's datacenter GPU space, the company has much less competition in the consumer space, with Intel and AMD much less powerful customers. The segment already represents more than 50% of the company's preliminary revenue results with Y/Y up 61%.”
Furthermore, the author predicts that NVDA will see renewed consumer demand for its next generation of chips. They wrote, “The 4xxx series will be launching soon and the company has spent almost $10 billion to secure capacity. Those who upgraded two years ago or missed the 3xxx cycle might now be ready to upgrade. Especially as despite rising interest rates, the economy remains strong.”
The Value Portfolio continued, “We expect what we're seeing in the current quarter represents the bottom before a recovery.” After admitting that Nvidia “clearly had a terrible quarter” The Value Portfolio concluded, “we also feel that that weakness is an opportunity.” They stated, “The company normally sees demand decline before new GPU releases and the company has a major 4xxx GPU release coming out in the fall. The company's datacenter business has continued to perform incredibly well with more than 60% YoY growth and consistent QoQ performance. Putting all of this together, we expect that Nvidia's recent weakness makes now a valuable time to invest.”
Manali Bhade, a Nobias 4-star rated author, published a post-earnings report at The Motley Fool, which concluded in a similarly bullish tone. Bhade touched upon NVDA’s operations, stating, “Nvidia's data center revenue was up 61% year over year to $3.81 billion. The data center business now accounts for nearly 56% of the company's total revenue. The company offers a broad suite of data center-focused hardware such as GPUs, CPUs, and DPUs (data processing units). Additionally, Nvidia also offers a CUDA toolkit, which is an environment for developers to easily build GPU-accelerated applications as well as GPU-optimized software libraries, targeting the needs of the data center industry.”
Regarding data center strength, Bhade continued, “Thanks to its broad catalog of product and software offerings catering to all the needs of the data center, every major cloud provider such as Amazon, Microsoft, and Alphabet is now using the company's chips.”
Bhade also noted, “The use of the company's technologically superior and cost-efficient data center chips is expected to become even more relevant in the current recessionary environment. Hence, being a leader in accelerated computing, Nvidia is well poised to benefit from the rapid expansion in the global data center accelerator market (expected to be worth $75.2 billion by 2027).”
Bhade also put a spotlight on Nvidia’s growth opportunity in the autonomous driving space writing, “Nvidia DRIVE Orin system-on-a-chip (SoC) is a very powerful and intelligent chip capable of processing huge amounts of data (feeds from interior and exterior cameras, RADARS, ultrasonic sensors, and LiDAR or light detection and ranging sonar) in a very short time.”
Bhade continued, “More than 25 vehicle manufacturers have opted for this SoC, which is currently in production.” Furthermore, the author states, “Nvidia estimates its design wins in the automotive industry to be worth $11 billion for the next six years.”
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.
Bhade highlighted the strength of the company’s balance sheet, writing, “Nvidia is a company with a significant technological advantage and a robust balance sheet (cash balance of $20.34 billion and total debt of $11.85 billion at the end of the first quarter).” But, they were quick to say that valuation here is “lofty” with NVDA shares trading for “177 times forward earnings.”
Ultimately, however, Bhade concluded, “However, despite the risks, Nvidia remains an amazing business. With prices somewhat corrected, a small investment in this stock may prove to be a good decision for retail investors.”
Overall, the majority of credible authors and Wall Street analysts that the Nobias algorithm tracks remain bullish on NVDA, even after its Q2 miss. 53% of recent articles written by credible authors (those with 4 and 5-star Nobias ratings) have included a “Bullish” bias. 14 out of the 19 credible Wall Street analysts that Nobias tracks who have provided analysis on NVDA shares believe that Nvidia’s stock price is headed higher.
Right now the average price target attached to NVDA shares by these 19 analysts is $234.94. Today, NVDA trades for $187.09, which means that this average price target implies upside potential of approximately 25.6%.
Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long NVDA, QCOM, AMZN, MSFT, and GOOGL. 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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