Nvidia (NVDA) was the darling of Wall Street for much of the past four years, as the stock rocketed 1,300% on rising revenue from gaming and crypto. But then 2018 happened: The company lost more than 50% of its value between October and the end of the year, before finally showing some life in 2019, having risen about 8% so far this year.
Nvidia’s story is not unique, as much of the entire industry saw a rough 2018. Oversupply and trade war concerns between the US and China, as well as domestic US politics and China economics has contributed to losses across the board. But Nvidia was hit especially hard, as demand for GPUs used for crypto mining plummeted as the crypto bubble burst.
Yet, even as the crypto market isn’t what it was this time last year (and perhaps will never reach that level again), Oppenheimer analyst Rick Schafer remains bullish on the company ahead of its Thursday Q4 earning release. The analyst reiterates an Outperform rating on NVDA stock with $190 price target, which implies about 17% upside for the stock.
Schafer points out that “NVDA revised F4Q $500M lower on lingering Pascal-crypto drag, though most of the incremental weakness came from DC (datacenter) and high-end Turing GPU demand, both impacted by China softness” The analyst says he believes “DC shortcomings also reflect spending cuts as hyperscalers digest capacity. [Intel] expects a DC recovery in 2H. Turing shortfalls likely reflect a nascent nextgen gaming ecosystem. Turing/DC issues appear transitory. NVDA offers secular growth/GM expansion, rare among large-cap semiconductor names.”
On Legacy Pascal, Schafer says the product has been “impacted by lingering crypto-mining inventory excess, [and] remains a likely drag on the gaming segment (56% of sales) in F1Q.” He continues, noting, “in its F4Q preannouncement, [management] cited softer demand for NVDA’s next-gen Turing GPU, the first to offer high-performance DLSS and ray-tracing. [Management] attributed the Turing shortfall to a weaker Chinese economy, though we believe nascent RTX gaming content is also to blame.”
Schafer believes datacenter (comprising 25% of revenue) “is a second cause of incremental weakness near term.” He says, “investors largely anticipated DC slowdown given recent commentary from peers, most notably DC heavyweight INTC (1/24). We see DC capex as fundamentally lumpy; however long-term growth trends remain intact. NVDA’s dominant position in AItraining accelerators appears secure, with nascent inference market a significant greenfield growth opportunity.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Rick Schafer has a yearly average return of 14.6% and a 68% success rate. Though Schafer has an average loss of 12.3% when rating NVDA, he is ranked #68 out of 5,137 analysts.
As with other companies in the industry, Wall Street is concerned with the short-term but optimistic in the long-term. TipRanks analysis of 32 analyst ratings on the stock shows a consensus Moderate Buy, with 22 analysts recommending Buy, nine recommending Hold and one selling. The average price target among analysts stands at $187.83, representing a 28% upside to the stock. (See NVDA’s price targets and analyst ratings on TipRanks)