Nvidia (NVDA) Stock: Short-Term Pain to Give Way to Long-Term Gains
Rumours are swirling over of Softbank’s potential sale of its Nvidia (NVDA) stake, and investors are taking notice. Nothing has been confirmed yet, but Bloomberg reports that the Japanese investor is planning on selling its stake in the chipmaker in early 2019.
Until its freefall began in October, Nvidia stock has produced huge gains for long investors, growing more than 9x since 2016. However, analyst Mitch Steves of RBC Capital thinks the rumoured Softbank sale is a bad omen for the company and has decreased his price target to $230 (from $260) while maintaining his Outperform rating. (To watch Steves’s track record, click here)
Steves believes the Softbank sale is a negative, as the company “likely has solid information on overall Data Center trends,” adding that “the chances that DC spending is only up +1–3% next year are increasing.” Combined with “used GPUs being resold in the secondary market,” Steves thinks the “near-term setup is under pressure.”
Long-term, however, Steves paints a brighter picture. He believes “a buying opportunity has presented itself” and suggests his short-term concerns have not impacted his long-term expectations. “While this is a near-term negative, we think the long-term story remains unchanged.”
Steves believes that revenue from gaming will “return to growth” in the latter half of next year, while maintaining a “cautious stance” in the near-term. He also thinks that 25-30% year-over-year growth for data is “still on the table”. Finally, he notes that in Q3 and Q4 of next year, EPS could “surprise to the upside and take numbers north of $7.50 for the full year (compared to the Wall Street of $7.28).” All in all, the analyst believes that a strong 2H19 will make up for a slower-than-expected 1H.
Wall Street is equally as bullish as Steves. The average price target of 30 analyst ratings tracked on TipRanks stands at $230.11, representing a 55% upside. Of the 30 analysts, 22 recommend Buy and 8 recommend Hold. The highest price target is $300. (See NVDA’s price targets and analyst ratings on TipRanks)