Nvidia: Great Company, But the Stock Trades at High Valuation

Nvidia’s (NVDA) fundamentals remain strong, the company continues to execute well, and a major concern from earlier in the year, i.e., cryptocurrency weakness, is likely not a factor given various other drivers for the business. However, KeyBanc analyst Weston Twigg sees better opportunities from a risk/reward perspective and, as such, initiates coverage on NVDA with a Sector Weight rating.

Nvidia has seen robust demand for GPUs across gaming and data centers over the last few years. Revenue has more than doubled from $5 billion in fiscal 2016 to $11.9 billion over the last 12 months. Across gaming, data centers, and the automotive market, Nvidia anticipates its total addressable market to be well over $100 billion.

Indeed, Twig anticipates positive long-term growth trends to continue in gaming, data centers, and pro visualization, and he is bullish on the new Turing architecture. Still, with the company’s high relative valuation, any deceleration in the near term could be a significant headwind for the stock, according to the analyst.

Twig stated, “While F3Q guidance is sub-seasonal, likely related to the launch of the Turing platform late in the quarter, we anticipate aboveseasonal growth after 3Q as Turing ramps through 2019. We also anticipate relatively strong data center growth through 2019 as GPU adoption continues to ramp, despite our view that cloud equipment capex will likely decelerate from >40% growth this year to around 19% growth in 2019. Headline risk related to market deceleration or growing competition in AI will likely weigh on the stock periodically, given its high valuation.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Weston Twigg has a yearly average return of 25.6% and a 64% success rate. Twigg is ranked #265 out of 4883 analysts.

Net net, most of the Street is more confident than Twigg’s sidelined stance, with TipRanks analytics showcasing NVDA as a Buy. Based on 26 analysts polled in the last 3 months, 18 rate a Buy on Nvidia stock while 8 maintain a Hold. The 12-month average price target stands at $293.92, marking a nearly 10% upside from current levels. (See NVDA’s price targets and analyst ratings on TipRanks)


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