If you’ve been waiting to buy Nvidia’s (NVDA) stock on a dip, analyst Romit Shah at Nomura is saying this: Good job, keep waiting. Shah points out that while Nvidia is a compelling multi-year growth opportunity, he remains in search of a better entry point.
Shah believes the graphics chip giant might see some headwinds due to tough comps in both gaming and datacenter. Therefore, the analyst reiterates a Neutral rating on NVDA stock, while lowering the price target to $225 (from $250), which represents nearly 17% upside from Wednesday’s closing price. (To watch Shah’s track record, click here)
Shah opined, “Datacenter, which has been the primary driver of NVDA’s multiple expansion over the past two years, is showing end-market softness. We tracked nine major cloud computing customers’ 3Q18 results; of the seven that have reported thus far, five reported revenue growth that decelerated yoy. Each company that broke out Cloud/Software/Service revenue showed segment-level deceleration. This is coupled with a deceleration of cloud capex growth; of the same nine customers, consensus is now forecasting capex growing 17% yoy on average in 2019E, down sharply from +39% yoy in 2018E.”
“As such, we are cautious on Datacenter near term and will remain so until we see a reset of expectations. The segment has grown every quarter for over two years and is now approaching a $4 billion annual run rate. The Street appears complacent; consensus is forecasting segment growth of approx. 37% in CY19E and 38% in CY20E, implying that Nvidia will more than weather the deceleration of customer spending. Simply put, we think that the stock will be sensitive to a miss or guide down within datacenter, particularly at this multiple. To us this would represent a catalyst towards becoming more positive, and we think it is simply a matter of time,” the analyst continued.
The analyst continued on to say Nvidia’s Gaming sector is facing tough comparables and the release of graphic chip Turing has not inspired confidence. Shah refers to the response from the Turing launch as “tepid” when considering the feedback from user forums and professional reviewers.
Most of the Street is far more confident than Shah’s sidelined stance, with TipRanks analytics showcasing NVDA as a Moderate Buy. Based on 29 analysts polled in the last 3 months, 21 rate a Buy on NVDA stock while 8 issue a Hold. The 12-month average price target stands at $289.96, marking a nearly 34% upside from where the stock is currently trading. (See NVDA’s price targets and analyst ratings on TipRanks)