Case Study: Nvidia (NVDA) stock according to high performing analysts
Key Points
Performance
Nvidia (NVDA) shares rose by 8.74% this week, pushing their year-to-date gains up to 62.67%. This compares favorably to the S&P 500 and the Nasdaq Composite Index, which are up by 3.82% and 9.7% during 2023 thus far, respectively.
Event & Impact
Nvidia posted fourth quarter results this week, beating Wall Street estimates on the top and bottom lines. During Q4, NVDA’s revenue totaled $6.05 billion, beating Wall Street’s consensus estimate by $30 million. Nvidia’s Q4 non-GAAP earnings-per-share came in at $0.88, beating Wall Street’s consensus estimate by $0.08/share.
Noteworthy News:
Nvidia’s CEO, Jensen Huang, highlighted the stock’s growth potential related to Artificial Intelligence during the Q4 earnings conference call, sparking bullish sentiment.
Nobias Insights
49% of recent articles published by credible authors on Nvidia shares offer a “bearish” bias. After the stock’s 62% year-to-date rally, only 1 of 4 credible Wall Street analysts who cover NVDA believes shares are likely to rise in value and their average price target applied to NVDA is $206.75, implying downside potential of approx. 11.2% relative to the current price of $232.86
Bullish Take Nobias 4-star rated author, Shawn Johnson, said, “CEO Jensen Huang claimed that Nvidia’s GPUs have increased AI processing performance by no less than a millionth over the past 10 years.”
Bearish Take Cavenagh Research, a Nobias 5-star rated author, said, “I understand that, as a business, Nvidia has lots of potential. However, I also would like to point out that the potential has an excessively rich price tag attached.”
NVDA Feb 2023
Nvidia (NVDA) posted Q4 earnings this week, causing the stock to rise by 8.74% this week. Nvidia beat analyst estimates on both the top and bottom lines, while also providing bullish guidance and highlighting its long-term growth potential - largely centered around recent Artificial Intelligence developments - during its quarterly conference call.
After the stock’s nearly 9% weekly rally, NVDA shares are now up by 62.67% on a year-to-date basis. This means that they’ve outperformed the broader markets by a wide margin. Comparatively, the S&P 500 and the Nasdaq Composite Index are up by 3.82% and 9.70% on the year, respectively.
Bearish Nobias Credible Analysts Opinions:
Cavenagh Research, a Nobias 5-star rated author, covered Nvidia’s Q4 report in an article that they published at Seeking Alpha this week. The author began their piece, stating, “Although Nvidia's performance in the final quarter of FY 2023 topped analyst expectations with regards to both revenue and earnings, the market arguably was more focused on Nvidia's upbeat outlook with regards to nascent AI opportunities -- opportunities which CEO Jensen Huang sees "at an inflection point."’
”According to CEO Huang,” Cavenagh Research continued, “Nvidia is set to generate significant revenue from services such as selling access to supercomputers and pre-trained AI models, potentially [soon] generating "hundreds of millions of dollars" in sales.”
Looking at Nvidia’s quarterly results, Cavenagh Research wrote, “During the three months ending January 2023, the chip designer generated revenues of around $6.05 billion, representing a 2% QoQ growth from $5.9 billion one quarter prior.”
“Additionally,” they stated, “the company surpassed the estimated $6.03 billion of revenues as estimated by analyst consensus estimates, indicating somewhat lagging market sentiment.” “In terms of profitability,” Cavenagh Research noted, “NVDA achieved noteworthy improvements in FY Q4 2023, with GAAP gross margin expanding to 66.1%, up from 56.1% in FY Q3 2023.”
“Similarly, on the backdrop of both margin and revenue expansion, Nvidia's operating income for FY Q4 2023 jumped to $2.2 billion, as compared to $1.5 billion for Q3 2023 (up 45% QoQ). EPS for the quarter came in at $0.88, beating analyst consensus estimates by 8 cents,” they continued.
After highlighting Nvidia’s Q4 fundamentals, Cavenagh Research transitioned into a discussion of the company’s valuation, writing, “I understand that, as a business, Nvidia has lots of potential. However, I also would like to point out that the potential has an excessively rich price tag attached.” They stated, “According to data compiled by Seeking Alpha, Nvidia is valued at a one-year forward P/E of x67, which represents a more than 173% valuation premium versus the information technology sector.”
Cavenagh Research continued, “Nvidia's P/B is x21 and P/S is x18, valuation premia of 450% and 535%, respectively.”And due to these high valuation premiums, the author concluded, “it is difficult to argue that Nvidia stock is a "buying opportunity."’ “In fact,” Cavenagh Research said, “valued at FWD x10 EV/Sales, Nvidia Corporation stock is trading too expensive to warrant an investment, in my opinion. I reiterate a Hold" recommendation.”
Patrick Seitz, a Nobias 4-star rated author, also touched upon Nvidia’s Q4 report in an article at Investors.com this week. Like Cavenagh Research, Seitz highlighted Nvidia’s top and bottom-line beats. Then, he proceeded to analyze the company’s operating segment results, stating:
“Gaming chip sales remained weak in the fourth quarter, falling 46% year over year to $1.83 billion. However, data center chip sales rose 11% to $3.62 billion, fueled by cloud service providers investing in artificial intelligence technology.
In Nvidia's smaller business segments, professional visualization sales plummeted 65% to $226 million while automotive and embedded sales surged 135% to a record $294 million.” Seitz concluded his report with a quant breakdown of NVDA shares using the Investor Business Daily system.
“NVDA stock ranks ninth out of 34 stocks in IBD's fabless semiconductor industry group, according to IBD Stock Checkup. It has an IBD Composite Rating of 84 out of 99. IBD's Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock's strengths. The best growth stocks have a Composite Rating of 90 or better,” he said.
Bullish Nobias Credible Analysts Opinions:
The growth potential of Artificial Intelligence is clearly the catalyst for Nvidia’s recent rally, and Nobias 4-star rated author, Shawn Johnson, highlighted this company’s strong standing in that particular industry in an article that he published at PC Gamer this week.
Johnson analyzed Nivdia’s Q4 conference call and said, “CEO Jensen Huang claimed that Nvidia’s GPUs have increased AI processing performance by no less than a millionth over the past 10 years.” He quoted Huang, who said, “Moore’s Law, at its best, would have delivered 100 times in a decade. By coming up with new processors, new systems, new interconnects, new frameworks and algorithms, and working with data scientists, AI researchers on new models, throughout that run, we’ve processed large language models a million times faster “
“Put another way: No Nvidia, no ChatGPT,” said Johnson. He continued, “The AI language model, which is said to run on roughly 10,000 Nvidia GPUs and has captured the world’s consciousness in recent months by displaying something resembling its actual consciousness, wouldn’t be here without Jensen.”
What’s more, Huang also stated, “Over the course of the next 10 years, I expect, working with developers to come up with new chips, new interconnects, new systems, new operating systems, new distributed computing algorithms and new AI algorithms and new models, I believe We’re going to make AI another million times faster.”
Johnson wrote, “If performing a million times over the past decade isn’t impressive enough, Huang has news for you: Nvidia is going to do it again.” It turns out, Johnson isn’t the only one who is bullish on Nvidia’s growth potential.
Shanthi Rexaline, a Nobias 4-star rated author, published a post-earnings article at Benzinga this week which put a spotlight on Wall Street’s reaction to Nvidia’s report and the consensus across these analyst firms was broadly bullish.
Rexaline said, “Sell-Side Savors Results: Reacting to the quarterly results, sell-side analysts raised their price targets for the shares:
Baird maintained its Neutral rating and increased the price target from $150 to $230.
Oppenheimer maintained an Outperform rating and hiked the price target from $250 to $275.
JPMorgan maintained an Overweight rating and increased the price target from $220 to $250.
Mizuho maintained a Buy rating and upped the price target from $200 to $230.
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.
Barclays maintained a Buy rating and increased the price target from $250 to $275.
Piper Sandler maintained an Overweight rating and hiked the price target from $225 to $275.
Needham maintained a Buy rating and raised the price target from $230 to $270.
Overall bias of Nobias Credible Analysts and Bloggers:
Looking at the credible analysts that the Nobias algorithm tracks (only individuals with 4 and 5-star ratings) the sentiment is less bullish. Only 1 out of the 4 credible Wall Street analysts that Nobias tracks believes that NVDA shares are likely to rise in value, with 2 out of the 4 credible analysts expressing “bearish” opinions.
The average price target being applied to NVDA shares by the credible analyst community is currently $206.75, which represents downside potential of approximately 11.2%. This tepid sentiment is shared by the credible authors who’ve recently written about Nvidia as well. 49% of recent articles published by credible analysts have included a “bearish” sentiment.
Disclosure: Nicholas Ward is long NVDA. Nicholas Ward wrote this article for Nobias at their request with the intention 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.