Why Did Nvidia Fall 4.5% on Friday?

Shares of American chipmaker Nvidia Corp. (NVDA) fell 4.5% on Friday, closing at $231.19 due to a cautious outlook from one of the five-star analysts, William Stein of Truist Financial. Year-to-date, NVDA stock has lost over 23% amid a broader market sell-off, and gained 52.1% over the past year.

The analyst sees a decline in demand for the semiconductor industry, especially in the second quarter. According to Stein, the demand for chips from the computer, consumer, and communications original equipment manufacturers (OEMs) has somewhat declined for some of the chip-making companies, which will impact their near-term performance.

Although Stein does note that the outlook for the second half of 2022 remains optimistic, he is concerned about the short-term effect of demand disruption coupled with limited supply, which could lead to a traditional cyclical downturn for the industry.  

Accordingly, the analyst cut the price target on NVDA to $298 (28.9% upside potential) from $347, while maintaining a Buy rating. This led to a slump in the stock as soon as the news hit the market.

Along with Nvidia, Stein also cut the price target for Advanced Micro Devices (AMD) and Intel (INTC) to reflect the temporary headwind of slowing demand.

Shareholders’ Approval to Double Shares Authorization

In other news, Nvidia has put up a proposal to shareholders to approve an increase in the authorized share capital at the upcoming annual stockholders’ meeting scheduled for June 2, 2022.

As per the current charter, Nvidia has 4 billion in authorized shares. As of April 4, Nvidia’s outstanding shares stood at approximately 2.5 billion, and 408 million equity awards were reserved for future issuance under its equity incentive plans and employee stock purchase plans.

“The Board recommends a vote FOR this proposal so that there are adequate shares of common stock to be used by the Board for general corporate purposes, including, but not limited to, stock dividends and/or stock splits, expanding our business through mergers and acquisitions, providing equity incentives to employees, officers or directors, and the raising of additional capital,” the company stated in a regulatory filing on Friday.

Nvidia Stock Analysis

According to TipRanks’ Smart Score, Nvidia scores a “Perfect 10”, indicating that the stock is highly likely to outperform the market. Bloggers and news articles are bullish on the stock, and hedge funds have increased their holdings of NVDA stock by 51.8K shares in the last quarter.

Similarly, Wall Street analysts have awarded the NVDA stock a Strong Buy consensus rating based on 21 Buys and five Holds. The average Nvidia price target of $343.61 implies 48.63% upside potential to current levels.

However, corporate insiders have sold shares worth $31.8 million in the last month, which probably indicates that insiders are aware of some negative sentiment in the company that the rest of us are not aware of. The insiders’ view resonates with analyst Stein’s short-term outlook on Nvidia stock.

In Conclusion

Considering the above factors, it would be reasonable to state that Nvidia may face short-term headwinds and it could be a good bet to hold on to the stock for a longer time horizon.

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