Semiconductor company Nvidia (NVDA) and long-time favorite on Wall Street in making investors happy these days (the stock rose 13% in June). Yet, while many are looking long-term and seeing Nvidia as a strong pick, not all are convinced that the stock is a slam-dunk investment. Some are pointing to an unstable chips market, rising US-China tensions and poor first-quarter results. One of them is analyst David Wong of Nomura, who isn’t quite ready to give in.
Wong maintained a Neutral rating on NVDA stock, with $147 price target, which implies a slight downside from current levels. (To watch Wong’s track record, click here)
Wong says he is impressed with Nvidia’s long history of success, especially its transition from being a leader in discrete GPUs for PCs, to identifying important new areas of growth like high performance computing and AI, and the conviction to invest for many years in advance of these markets developing.
A large reason Nvidia invested heavily in AI-capable chips is the promise of a massive autonomous market. While Nvidia is known best for processors in self-driving cars, Wong says the company is targeting not just autonomous vehicles but also robotics, drones and factory automation. The automation market is growing rapidly as companies continue to look for ways to increase efficiency, cut labor costs, and improve quality control.
While gaming is also a large market for Nvidia, Wong says it is coming out of two quarters of an inventory correction. The analyst thinks that Nvidia likely has good visibility into channel inventory and so consider it to be a positive that the company now thinks that channel inventory is at appropriate levels, as the company expects revenue to normalize in either the July or October quarter.
Wong remains neutral on the company as it still faces short-term hurdles, and there are no guarantees that the long-term will pan out exactly as many expect. For example, while Nvidia is a leader in autonomous processors, Tesla recently announced it would stop using Nvidia chips in favor of their own. While some argue that this is a step back for the chipmaker, others say this may be a good sign, as it could force Tesla competitors to increase the pace of their autonomous projects, and rely on Nvidia’s proven chips going forward.
All in all, While Nvidia was one of Wall Street’s favorite companies for almost three years — with shares surging more than 700% between 2016 and the second-half of last year — the company’s stock has come back down to Earth. But while its stock is down big since April, TipRanks analysis of 28 analyst ratings on Nvidia shows analysts are betting on this. There is a Moderate Buy consensus, with 18 analysts recommending Buy, eight recommending Hold and two Selling. The average price target is $186.62, representing a 3% upside to current levels. (See NVDA’s price targets and analyst ratings on TipRanks)