Once the darling of Wall Street, Nvidia (NVDA) has fallen back to Earth.
The company’s stock grew about 750% in only 33 months between January 2016 and September 2018, but has plummeted more than 50% since then. It had rode the crypto wave, as cryptocurrency miners used its graphics cards to create cryptocurrency, including Bitcoin. But when that bubble burst, the company was left with extremely high inventory of its Pascal graphic cards and revenue fell way short of November-quarter expectations.
Mark Holder of investment advisor Stone Fox Capital says moving past crypto is crucial for Nvidia and sends a tepid bullish signal on the stock.
Holder is waiting for NVDA to hit bottom, which says may happen “around $130.” In order to do that, “a lot of the cryptocurrency inventory headwinds need a resolution.” Holder also thinks a “clear signal that a turnaround has started will be the bottom in gaming revenues,” which have remained flat this year amid higher inventory and selling prices.
Looking forward, Holder thinks the company “has a strong future in datacenter and automotive markets growth.” He is also optimistic over Nvidia’s increased buyback plan from $1 billion to $8 billion, which should serve as a buy signal to investors. Holder also cites Nvidia’s improved financial state, as free cash flow has increased from $1.1 billion in 2016 to $3.4 billion today. This comes as revenue has increased 2.5x since 2016, while operating margin nearly doubled from 22% to 41%.
While still a nascent market, Nvidia is making news for (what its website dubs) its “end-to-end solution for autonomous driving.” The Nvidia Drive platform is able to process data from 16 sensors and offers AI and deep learning simulation. It is making processors specifically meant for the auto market; while fully autonomous/mass-produced vehicles may be a generation away, cars today are becoming increasingly autonomous, with features including lane-assist and auto braking. While the biggest opportunity lays in fully self-driving cars, Nvidia will still reap rewards from providing technology to auto companies developing semi-autonomous functions.
Even amid the fall, Wall Street is optimistic about Nvidia’s future. TipRanks analysis of 30 analysts shows a Moderate Buy analyst consensus, with 22 analysts recommending Buy and eight recommending Hold. The company’s $229.57 average price target represents a 72% upside potential ahead. (See Nvidia’s price targets and analyst ratings on TipRanks).