Nvidia (NASDAQ:NVDA) stock is down about 56% year-to-date. In addition to this significant value erosion, Mizuho Securities analyst Vijay Rakesh has opined that NVDA’s earnings could also take a hit due to some near-term challenges. Rakesh has lowered his price target on NVDA stock to 205 from $225. However, he is upbeat about NVDA’s long-term prospects and maintains a Buy recommendation.
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What Could Hurt NVDA’s Growth?
Citing Server and Data Center supply chain trends, the analyst highlighted that the “strength in Data Centers” is moderating. Further, the U.S. government’s new license requirement for exports to China (restrictions imposed to prevent technology transfers) remains a drag. Rakesh added that the weakness in gaming and crypto could put additional pressure on its revenues and earnings.
It’s worth mentioning that NVDA, which makes high-end GPUs (graphics processing units) and ICs, saw its Gaming revenue fall 44% quarter-over-quarter (down 33% year-over-year) in the second quarter of Fiscal 2023. Weakness in consumer demand, due to macroeconomic headwinds and the Russia-Ukraine conflict, is also responsible for this decline. Further, lower average sales pressured gaming revenues.
Moreover, lower demand from enterprises and OEMs (original equipment manufacturers) impacted its Professional Visualization revenues in the second quarter.
As for Data Center, revenues increased 61% year-over-year in the quarter but remained below management’s expectations.
Management expects the weakness in Gaming and Professional visualization revenues to continue in Q3. Further, reduced crypto mining is a concern. However, the company expects the strength in Data Center revenues to sustain.
Given the challenges, Rakesh has lowered his third quarter and Fiscal 2023 revenues and earnings guidance. However, he reiterates a Buy recommendation, as he sees NVDA “well-positioned with its AI dominance >90% of AI workloads, with AI <10% total server workloads.” Further, easier comparisons in Fiscal 2024 (on the earnings front) will likely act as a positive catalyst.
Is Nvidia Stock Expected to Rise?
Despite the concerns mentioned above, analysts see a significant upside in Nvidia stock over the next 12 months.
NVDA’s average price target of $208.06 implies 60.9% upside potential. On TipRanks, NVDA stock commands a Moderate Buy consensus rating based on 24 Buys and nine Holds.
Bottom Line
The near-term headwinds, stemming from the export restrictions to China and a slowdown in Gaming, Crypto mining, and Professional Visualization revenues, could continue to hurt Nvidia’s revenue and earnings. Nevertheless, its AI (Artificial Intelligence) capabilities and strength in Data Center and automotive revenues are expected to support the company’s long-term growth.
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