Shares of GPU maker Nvidia (NVDA) have been looking to catch a bottom of late after shedding more than 50% of their value from peak to trough. Despite the severity of the plunge, the stock remains relatively expensive, with a lot of expectations still built in.
At writing, Nvidia stock goes for 46 times trailing earnings, 14.4 times sales, and 47.6 times cash flow, making it one of the pricier names in big tech. The $427 billion graphical powerhouse has delivered incredible hardware innovations under the leadership of its legendary founder and CEO, Jensen Huang.
Still, rates are headed higher from here. Also, there’s no guarantee that demand will stick around once Nvidia’s supply-chain issues are fully resolved as we head into a Fed-induced period of economic sluggishness.
Nvidia’s first quarter was strong, but management noted of an expected $500 million impact from the Ukraine-Russia crisis and China’s COVID lockdowns. With “crypto winter” approaching and tightening consumer balance sheets, the road ahead seems to be getting bumpier.
On the plus side, crypto isn’t as much of a needle mover for Nvidia anymore, and with intriguing new innovations unveiled at the firm’s latest GPU Technology Conference (GTC), there are reasons to believe that Nvidia can continue swimming forward as the macro tides turn against it, putting it in a better position to bounce back once the economic slowdown passes.
For now, I remain neutral on Nvidia stock, primarily due to valuation concerns. Despite the magnitude of the decline, shares of NVDA are still up more than double from its 2020 pre-pandemic highs, leaving a lot of room to the downside as this tech-driven sell-off continues.
Nvidia Stock: Impressive Tech Showcased at GTC
Sorry, Apple (AAPL), but Nvidia seems to be delivering more exciting presentations these days. Indeed, consumers and investors already know what to expect from Apple going into its keynotes. A new iPhone, iPad, new operating systems, services, and all the sort.
However, it is worth noting that the M2 chip was a jaw-dropper, with impressive graphical capabilities that could turn the next-generation Macbook Air into a more able gaming machine.
In any case, Apple’s keynotes aren’t typically needle-movers on the stock. At least not anymore. Nvidia presentations seem to have the awe factor that gets investors genuinely excited.
At the latest GTC, Nvidia unveiled its “Hopper” graphics architecture (Nvidia refers to it as the next generation in accelerated computing) and the Grace superchip for the data center. The firm also noted its automotive pipeline grew to $11 billion from $8 billion.
Indeed, Nvidia is one of the most exciting ways to play AI, gaming, crypto-mining, and the metaverse, with its Omniverse platform.
Though investors grew excited following the March 2022 conference, shares of Nvidia have since surrendered all the gains and then some. The broader tech sell-off has just been so brutal for firms with rich multiples.
The Road Ahead Could be a Bumpy One
Despite recent geopolitical headwinds and supply-chain disruptions, Nvidia expects a strong second quarter, with 24% sales growth year over year. As China’s COVID lockdowns ease, Nvidia is well on its way to getting the supply side back in order.
Whether demand stays as strong as it was in the first quarter remains to be seen. Many consumers and firms have cut back on spending in anticipation of a recession. As innovative a firm as Nvidia is, it’s not immune from the next downturn.
Wall Street’s Take
Turning to Wall Street, NVDA stock comes in as a Moderate Buy. Out of 31 analyst ratings, there are 27 Buy recommendations and four Hold recommendations.
The average Nvidia price target is $272.26, implying upside potential of 59%. Analyst price targets range from a low of $165.00 per share to a high of $410.00 per share.
The Bottom Line on Nvidia
Recent hardware innovations, including Nvidia H100 powered by the Hopper architecture and the Grace Superchip, bolster Nvidia’s long-term fundamentals. The company is on the right side of a profound secular trend, but until the worst of economic storm clouds pass, it’s hard to draw a line in the sand amid the stock’s free-fall.
Wall Street is staying incredibly bullish on NVDA stock, as the average price target implies ample upside potential. It’s hard not to be excited with all the innovations and long-term secular tailwinds.
