Case Study: Nvidia (NVDA) stock according to high performing analysts
Key Points
Performance
NVDA shares rose by 26.41% this week, pushing their year-to-date gains up to 172.06%. This compares favorably to both the S&P 500 and the Nasdaq Composite Index, which are up by 9.97% and 24.92%, respectively, on a year-to-date basis
Event & Impact
Nvidia posted its first quarter results this week, beating analyst consensus estimates on both the top and bottom lines. During Q1, NVDA’s revenue totaled $7.19 billion, beating Wall Street’s consensus estimate by $670 million. Nvidia’s Q1 non-GAAP earnings-per-share came in at $1.09, which was $0.17/share above consensus estimates.
Noteworthy News:
It’s true that NVDA beat estimates on both the top and bottom lines during Q1, but that’s not why the stock rallied more than 26% this week. The company issued Q2 guidance of $11 billion in sales, which was more than 50% above Wall Street’s Q2 estimate of $7.2 billion coming into the quarter. The demand for Nvidia’s data center and artificial intelligence chip sales is much higher than anyone on Wall Street projected coming into Q1 and after NVDA’s CEO’s comments during the company’s quarterly conference call, it appears that this positive momentum has long-term potential.
Nobias Insights
56% of recent articles published by credible authors focused on NVDA shares offer a “bullish” bias. However, after NVDA’s big rally this week, only three out of the seven credible Wall Street analysts covering Nvidia believe that shares are likely to rise in value. The NVDA average price target of these analysts is $253.57, implying a downside risk of 35% relative to the current share price of $389.46.
Bullish Take Luke Lango, a Nobias 4-star rated author, said, “Nvidia is guiding for $11 billion in revenues next quarter. Wall Street was looking for just $7 billion. That’s a $4 billion beat on expectations – the biggest beat I’ve ever seen in my career.”
Bearish Take Howard Smith, a Nobias 4-star rated author, stated, “The company's market cap vaulted up to nearly $950 billion after the stock's run this week. That puts it at an extremely high valuation based on its price-to-earnings (P/E) ratio. Even looking forward to the next fiscal year, the P/E is still at a lofty level around 50.”
NVDA May 2023
Nvidia (NVDA) posted its first quarter earnings this week, which absolutely blew Wall Street away. That’s not hyperbole. Nvidia’s Q2 guidance was more than 50% above consensus Wall Street estimates, causing shares to rally by nearly 26.5% this week, adding nearly $200 billion to the stock’s market cap at its recent highs.
Nvidia ended the week with a market capitalization of $963.2 billion. No semiconductor stock has ever reached the $1 trillion market cap threshold, and after this week’s rally, it appears that NVDA shares may be the first to reach that milestone.
Despite this quarter, which inspired dozens of analysts to raise their price target on shares, there is a concern amongst the credible individuals that Nobias tracks that the stock’s valuation is too high. Moving forward, NVDA remains a battleground stock as growth investors and value investors attempt to find a middle ground. But, in the near-term, the company’s momentum remains incredibly strong with shares now up by 172.06% during 2023 thus far.
Bearish Nobias Credible Analysts’ Opinions:
After Nvidia’s earnings report and ensuing stock rally, Howard Smith, a Nobias 4-star rated author, published an article at the Motley Fool titled, “Why Nvidia Stock Broke Out This Week”. He wrote that the company’s quarterly results were “excellent”, noting that Nvidia, “showed a recovery in gaming and record revenue from Nvidia's data center segment” and most importantly, said that, “it was what the company said about how fast artificial intelligence (AI) is boosting sales in that latter segment that has investors scrambling to buy the stock.”
Looking at the quarterly results, Nvidia’s revenue totaled $7.19 billion, beating Wall Street’s consensus estimate by $670 million. The company’s non-GAAP earnings-per-share came in at $1.09, which was $0.17/share above estimates. Looking at the results, Smith said, “Nvidia reported $7.2 billion in sales, when its own most recent projection was $6.5 billion.” “But,” he continued, “it was the second-quarter estimate of $11 billion in sales that shocked investors.”
The company updated guidance for Q2, stating that it expected sales to be in the $11 billion area, which was approximately 50% above the $7.11 billion analyst consensus. Smith noted that during its quarterly report, NVDA’s CEO, Jensen Huang, explained why the demand for his company’s chips is so strong.
“Huang went on to explain that $1 trillion worth of data center infrastructure will have to transition existing processing units to accelerated computing chips,” Smith said. “And Nvidia is a leader in this area,” he added.
Despite the stock’s strong momentum after that big second quarter guidance raise, Smith stated that Nvidia stock could have valuation issues. “The company's market cap vaulted up to nearly $950 billion after the stock's run this week,” he said. “That puts it at an extremely high valuation based on its price-to-earnings (P/E) ratio. Even looking forward to the next fiscal year, the P/E is still at a lofty level around 50.”
Looking at historical averages, over the last 10 and 20-year periods, Nvidia’s average price-to-earnings ratios were 36.8x and 33.9x, respectively. Therefore, the stock’s current earnings multiple is well above the stock’s normal P/E levels; however, it appears that the market believes the premium is warranted due to Nvidia’s potential to continue to beat expectations and post unexpectedly high growth moving forward.
Bullish Nobias Credible Analysts Opinions:
Luke Lango, a Nobias 4-star rated author, published an article this week that put a spotlight on the very unique nature of Nvidia’s growth this quarter. He began his article by saying, “The company absolutely crushed Wall Street revenue and earnings estimates for the first quarter. Revenues beat estimates by a whopping $670 million. Earnings topped estimates by nearly 20%.” “But it was the guidance that really turned heads,” he added.
Lango wrote, “Nvidia is guiding for $11 billion in revenues next quarter. Wall Street was looking for just $7 billion. That’s a $4 billion beat on expectations – the biggest beat I’ve ever seen in my career.” He noted that Nvidia has been public since 1999, having survived - and thrived - throughout each recession since; however, he said that he’s never seen a quarter like this one.
Regarding Nvidia’s growth figures, Lango wrote, “That marks the first time in public company history – the first time in 25 years – that Nvidia will report a 50% surge in sales from one quarter to the next.” And, he continued, this trend is long-term, secular growth tailwinds. He made it clear that artificial intelligence is driving Nvidia’s growth and Lango believes that this trend is far from a fad. “AI isn’t crypto. It isn’t the metaverse. It’s not pot stocks, NFTs, ICOs, or SPACs,” he said. “It is the second coming of the internet – but bigger”.Looking at the market’s response to NVDA’s quarter on Wednesday, he said, “Altogether, AI stocks added about $300 billion in market value in about an hour yesterday afternoon.”
“For context,” he said, “that’s more the entire market value of Coca-Cola.”“Coca-Cola was founded in 1893. It spent 131 years trying to create $300 billion in economic value,” he added. He remains bullish on Nvidia moving forward, concluding his piece, “The AI stock boom has arrived.”
Nobias Credible Analysts
According to Yahoo Finance, since NVDA reported earnings on May 24th, 2023, 29 different Wall Street analysts have updated their opinions on NVDA shares. Overall, there are 40 Wall Street analysts who cover Nvidia shares, and the average price target that they’ve attached to NVDA shares is $424.92. This implies that even after NVDA’s 26% weekly rally, shares have upside potential of approximately 9.1%.
However, looking at the opinions expressed by the credible Wall Street analysts that the Nobias algorithm tracks (only those with Nobias ratings of 4 or 5 stars) the sentiment surrounding NVDA is much more bearish. This week,, a slew of these credible analysts raised their price targets in response to Nvidia’s quarter; however, their average target is still well below the stock’s current share price.
For instance, Ross Seymore of Deutsche Bank, a Nobias 5-star rated analyst, came away from the quarter with a very bullish outlook. According to the Fly on the Wall, “Deutsche Bank analyst Ross Seymore raised the firm's price target on Nvidia to $390 from $220 and keeps a Hold rating on the shares. "Just wow" is how the analyst describes the company's Q1 results.”
Seymore’s updated target is in-line with the stock’s post-rally share price. Yet, another 5-star rated analyst, Matt Bryson of Wedbush, came away from the quarter with a price target that represents double digit downside potential.
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.
According to the Fly on the Wall, “Wedbush analyst Matt Bryson raised the firm's price target on Nvidia to $290 from $216 and keeps a Neutral rating on the shares ahead of quarterly results. The firm expects Nvidia to exceed current Street and Wedbush targets and to offer a robust forward outlook.
The question rather, in the firm's view, is the magnitude and nature of upside the company will realize. Nvidia's data center business has only strengthened through early 2023, and Wedbush's checks through March into early April suggested surprisingly robust activity in gaming. Net, the firm sees almost no risk Nvidia comes up short this quarter or with guidance.”
Overall bias of Nobias Credible Analysts and Bloggers:
Credible authors that the Nobias algorithm tracks are more constructive on shares, with 56% of recent articles published on NVDA expressing a “bullish” bias.
On the other hand, of the seven credible analysts who cover NVDA shares, only three of them believe that the stock still has upside potential, leaving credible analysts bearish on NVDA . Overall, the average price target being applied to NVDA by these credible individuals is $253.47. Relative to the stock’s current share price of 389.46, that represents a downside risk of nearly 35%.
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.