Nvidia ( NVDA -3.31 percent ) had a good month on the stock market last month, increasing 12 percent and providing some respite to investors after a bad start to 2022. However, April is shaping up to be another bad month for the graphics card manufacturer.
Nvidia's stock has lost about 20% of its value this month, wiping out all of March's gains. The drop is due to poor analyst sentiment regarding the status of the market in which the company operates. The stock's decrease, on the other hand, has made it appealing, especially given Nvidia's continuous rise.
Nvidia is currently available at a tempting price.
Nvidia's latest price-to-earnings (P/E) ratio has dropped to 55.8, which is lower than the stock's five-year average earnings multiple of 58.5. It's also worth mentioning that Nvidia stock is currently selling at its lowest P/E ratio since 2019, when it was at 60. In 2020 and 2021, the stock was selling at higher prices, with earnings multiples of 85 and 90, respectively.
Of course, Nvidia remains costly in comparison to the rest of the market. The P/E ratio of the Nasdaq 100, for example, is 31.8. Nvidia bulls, on the other hand, might be able to rationalize this relatively high value given the company's rapid growth. Nvidia predicts $8.1 billion in revenue in the first quarter of fiscal 2023, a 43 percent rise over the prior-year period, after a 61 percent growth in revenue in fiscal 2022 (which concluded on Jan. 30, 2022) to $26.9 billion.
Its earnings are predicted to increase to $1.29 per share, up from $0.91 in the previous quarter. Furthermore, analysts estimate Nvidia will end fiscal 2023 with revenue of $34.8 billion, up 30% from the previous year. Given its recent fall, investors seeking for a fast-growing tech company may be interested in Nvidia. Will this, however, be a good idea? Let's have a look.
The decline in the graphics card sector is causing headwinds on Wall Street.
Due to a projected weakening in demand for consumer graphics processing units (GPUs) used in personal computers (PCs) for video gaming, Nvidia stock has been downgraded on Wall Street. Sanctions against Russia, according to investment bank Baird, have slowed demand for consumer graphics cards, as the country is apparently a major buyer of GPUs used by both gamers and cryptocurrency miners.
Tristan Gerra, a Baird analyst, has decreased his price target on Nvidia stock from $360 to $225 and downgraded his rating from "outperform" to "neutral." Customers have begun canceling GPU orders, according to Gerra, due to an excess in Western Europe and Asia, as well as a downturn in demand from crucial regions like China. As a result, the cost of GPUs has begun to fall. Lower graphics card demand, according to the analyst, might hurt the company's revenue in the second half of the year.
Another bank, Truist, predicts a short-term decrease in demand for semiconductors used in computers and other consumer electronics. The bank lowered its price objective for Nvidia shares from $347 to $298. This bearish opinion might continue to weigh on Nvidia's shares, lowering its valuation.
However, astute investors should keep in mind that Nvidia has strong long-term potential in numerous markets, making it a good idea to buy the company on the cheap.
Investors must concentrate on the big picture.
Given that gaming is Nvidia's main industry, accounting for 46% of total sales last fiscal year, a near-term graphics card oversupply isn't good news. However, investors should keep in mind that the delay is most likely only temporary, as Nvidia stands to benefit from a GPU upgrade cycle.
In their investor day presentation for 2022, Nvidia stated that 71 percent of its installed base is using graphics cards based on older architectures. Only 29% of Nvidia's users are using the RTX series graphics cards, which were released in the second part of 2018. The new RTX series cards have significantly improved performance over the GTX series cards, which are used by the majority of the user community.
Furthermore, gamers upgrading to Nvidia's graphics cards based on the latest Ampere architecture will pay $300 more than those switching to older cards. As a result of a mix of robust volumes and improved pricing, the graphics card upgrade cycle should provide Nvidia's video game business a significant boost in the long run.
Nvidia's growing prospects in the automotive sector, as well as its leading position in the booming data center GPU field, should ensure that the business remains a top tech stock for the foreseeable future.
Overall, Nvidia's multiple catalysts make it a stock worth picking up on the cheap, as the company is expected to grow its earnings at a 30% annual rate for the next five years. However, given the tremendous growth drivers it has in multiple end industries, it won't be shocking to see it perform better.
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