Investors are hoping this year’s performance doesn’t become a habit for Nvidia’s (NVDA).
The GPU and chips giant had grown more than 750% since 2016, before plummeting more than 50% in just the past three months. The company was riding high with crypto wave, as cryptocurrency miners used its graphics cards to create cryptocurrency. But upon the bursting of crypto’s bubble this year, the company was left with extremely high inventory of graphic cards and investors were extremely disappointed with November-quarter results.
Even amid the plummet, RBC Capital analyst Mitch Steves maintains his outperform rating on the stock but drops his price target from $230 to $200, which implies nearly 50% upside for the stock. (To watch Steves’ track record, click here)
Steves says the decreasing average sale price for GPUs is a result of “additional secondary market sales,” which is creating less demand for the primary market. Looking at price trends, the analyst says, “we notice a slight downward move which aligns with our belief that sales could be a bit more muted in the month of December (more secondary market availability with lower ASPs as well).” Steves believes this is a short-term story that does not impact his long-term view on the company.
Looking long-term, Steves is bullish on Nvidia for its gaming, data center and automotive businesses. On gaming, he says, “overall, we are bullish long-term given multiple tailwinds including 1) complexity of video games, 2) Virtual reality and 3) the potential for more customers to shift to Nvidia products vs. AMD GPUs gaming products.”
The automotive market is increasing in importance for Nvidia. As cars become more technologically advances and continue to include autonomous features, automakers must increase the computing power in its vehicles. Aside from the autonomous part, Steves says, “display technology should also increase in the future…[including] upgraded navigation systems, back-seat passenger displays, and surround view technology.” All of which “creates the need for more computing power” and opens opportunity for Nvidia.
Wall Street is optimistic about Nvidia’s future, even after a terrible year. TipRanks analysis of 30 analysts shows a Moderate Buy analyst consensus, with 22 analysts recommending Buy and eight recommending Hold. The company’s $228.50 average price target represents a 74% upside potential ahead. (See NVDA’s price targets and analyst ratings on TipRanks).