Opinions
Larry Berman CFA, CMT, CTA
NVIDIA Corporation
NVDA-Q
COMMENT
Aug 26, 2024
Stock price when the opinion was issued
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Won't easily be toppled from the throne on which it finds itself. Every time someone thinks they can do that, it comes out with a new version of the chip that's even better. Definitely the bellwether on demand going forward. Any sign of negativity in the comments tonight won't play well for any name in this arena.
He has a coin to flip on what the results are going to be. The interesting thing about today's report is that he feels the bar's being set a bit lower than in previous quarters. We're now in the thick of uncertainty about where the economy is going over the next 6 months after the impact of Trump's policies. We've heard cautionary whispers coming out, so analysts may be looking for some negativity in the comments tonight.
If results aren't as bad as we think, stock could see a nice little pop. Stock's consolidated after a nice rebound from April. It comes down to where's the market, where's the bar been truly set, and what does the CEO say?
Personally, he thinks the street's prepared for some bad news tonight. If it gets that, but nothing worse, it doesn't mean the market will crater on this stock. There will be nagging concerns: that we've priced too much into the stock, we've priced in too much demand, what's the competition going forward, are there viable and cheaper options coming out of other countries like China? If so, investors will be prepared to pull back. But it's not over yet for the stock; it's still the market leader and a solid company going forward.
Premium contentThis juggernaut is too big to ignore. At the end of May, it reported yet another top and bottom line beat and issued rosy guidance. Numbers are supported by continued strong demand for its chips, particularly in the age of AI and despite Trump's export restrictions to China. Cloud providers, governments and businesses keep buying their stuff. Nvidia is truly an excellent company.
It rallied 1.7% on a very choppy day, but the reason is unclear. The market is betting that Trump will let NVDA sell $50 billion of chips this year and China will cut a deal with the U.S. with its rare earths, which the U.S. needs. Who knows what will happen? Anything can happen. If the sale is blocked, then wouldn't this encourage to invest more in making its own chips?
Is the leader in the AI race with its chips. He likes this, except the underlying political situation whether NVDA or another chip company will get effected whenever the rules change. Mitigate risk: only placing a stop loss. He targets $175-180, but it won't be a smoothride.
One of the things his team's looking at right now is that it seems some of the regulations surrounding the semiconductor industry will be reduced (specifically China, but other countries as well). That could mean an expanded market for the semi manufacturing equipment companies, such as KLAC. AVGO has also been a strong performer, and he owns some NVDA. Those two names have strong relative price performance, are economically sensitive, cyclical, and have pricing power.
Premium contentNVIDIA Corporation has established itself as a dominant player in the semiconductor industry, particularly in the field of graphics processing units (GPUs). Founded in 1993, the company has branched out into multiple high-growth markets including AI, gaming, and data centers. Its well-diversified portfolio and continuous innovation have allowed it to enjoy strong revenue growth and high investor interest. As of the latest data, NVIDIA remains one of the most prominent and innovative companies in technology, contributing significantly to advances in artificial intelligence and machine learning applications. Social media mentions are up 37% in the past 24h.
Considers the US restrictions as short-term obstacles. Stock's starting to rebound quite nicely. The leader today in AI computing, and for the foreseeable future. Strong global thirst and demand for AI infrastructure. Unmatched advantages compared to other names in the space. Data centres are driving growth. Recent earnings beat.
AI adoption is still in very early stages. Still trading at 1x PEG ratio. Earnings growth is not reflected in the valuation. Sees EPS at 33% going forward. Yield is 0.03%.
Premium contentNVDA has had some setbacks with AI competition and trade war uncertainty, but recently reported earnings showed a 69% increase in revenues --including a 73% increase in data center revenues. It trades at 46x earnings and supports a ROE over 100%. We like that cash reserves are growing, while shares are aggressively bought back and debt is retired. We recommend setting a stop-loss at $106, looking to achieve $172 -- upside potential of 18%. Yield 0.03%
(Analysts’ price target is $172.22)Semis are cyclical with their highs and lows, and we are possibly in the early innings of AI--who knows where AI will take us. NVDA is getting cheaper as the stock price rises. As earnings rise, so will the stock. In the past 1.5 years, NVDA shares have not risen as fast as earnings growth.
Forecasting NVDA's movement after it reports late Tuesday, based on calls and puts, the share price will swing 11% either way from today's price. That straddle position is the risk that they market makers are willing to sell those calls or puts. Looking at the NVDA chart a year ago: shares ran up to earnings, followed by a sell-off for a couple of weeks. Also, we had a big move up in the price target after beating earnings. The next report: share ran up again, NVDA beat earnings, rallied for 2 weeks to the one-year forward price, then fell and went sideways to its breakout point. The last time, it rallied to a new high, a big beat, rallied a couple weeks, then another correction. Considering the price target now at $140 and 47x PE, we'll likely see selling into the quarter. Also, there's no support 11% lower, but at the rising 200-day average of $95ish.