Opinions
Brian Madden
NVIDIA Corporation
NVDA-Q
BUY
Feb 28, 2025
Stock price when the opinion was issued
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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.
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.
Used to make 75% gross margins, but those have jumped to 90%. If it goes back to historic gross margins, even if sales continue, you'll see a huge degradation in profit. Sweet spot in terms of demand. Market thinks it can do no wrong. Worries that demand will abate or just normalize. Good news is baked in. Watch your position size.
In his momentum mandate. Compelling valuation of 27-28x PE compared to its own history. Earnings expected to grow at a high-20s rate. PEG ratios around 1 are really good, up to 2 are OK, beyond that is expensive. Risks of further tariffs on China would not make a huge impact.
Risk is that export restrictions on the most advanced AI chips would be tightened further and impact sales. His bullishness on the name is underpinned by the AI revolution. Demand is there, though capacity constrained recently. 90% of chips go to data centres, rest into gaming and auto.
Owns for its terrific first-mover advantage in semiconductors and, in particular, GPUs and other chips for AI and data-centre applications. Reported good results. Stock's pulling back, but still in a long-and-strong secular uptrend. Volatile stock, hyper-owned and hyper-scrutinized. People tend to own it with a very short-term trading mentality. Positioned and weighted properly, it definitely deserves a spot in a diversified portfolio.