Investors are looking for safer bets and have dumped several tech names over demand concerns amid the ongoing macro uncertainty and high inflation. Shares of Nvidia (NASDAQ: NVDA), a leading maker of graphics processing units (GPUs), have tanked 46% year-to-date.
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Weak Guidance
Despite reporting better-than-anticipated fiscal first-quarter results last month, Nvidia failed to impress investors due to its weak second-quarter guidance.
The company expects a hit of nearly $500 million to its Q2 FY23 revenue due to the situation in eastern Europe, and the COVID-19 lockdowns in China. Investors are also concerned about the extent to which the crash in cryptocurrency will impact the crypto-mining-driven demand for Nvidia’s GPUs.
Overall, Nvidia expects Q2 FY23 revenue to come in at “$8.1 billion, plus or minus 2%.” The company expects the “strong” sequential growth in the revenue from Data Center and Automotive segments to be more than offset by the sequential decline in Gaming revenue.
Wall Street’s Take
Recently, Bank of America Securities analyst Vivek Arya named Nvidia and On Semiconductor (ON) as his top semiconductor picks. Arya expects Nvidia, along with Advanced Micro Devices (AMD) and Marvell Technology (MRVL) to gain from the shift to the cloud, while he expects ON, Analog Devices (ADI), and NXP Semiconductors (NXPI) to benefit the most from their exposure to auto electrification.
Arya stated, “Our top picks serve end-markets where we expect spending/content growth drivers to be most resilient, such as in cloud computing/AI, high-end industrial, EV/advanced driver assist systems and in rising chip complexity.”
Arya feels that at the current levels, semiconductor stocks seem compelling on a relative basis compared to industrial and infotech stocks in the S&P 500 (SPX). Moreover, he argued that catalysts such as the easing of China lockdowns could “re-energize investor interest back in the sector.”
Overall, Nvidia scores a Strong Buy consensus rating based on 27 Buys and four Holds. The average Nvidia price target of $275.27 implies 73.47% upside potential from current levels.
Conclusion
Nvidia is expected to face near-term headwinds due to macro challenges, but most Wall Street analysts continue to be optimistic about the company’s growth prospects in the years ahead. This is based on the strong demand in the firm’s key end-markets, including gaming, data centers, automotive, AI applications, and the multiverse.
On the TipRanks Smart Score system, Nvidia earns a 9 out of 10, which implies that the stock is likely to outperform the broader market.
Also, TipRanks Hedge Find Activity tool indicates that the Confidence Signal for Nvidia is Very Positive, with hedge funds increasing their holdings in Nvidia by 1.3 million shares over the last quarter.
