What Do Nvidia’s Risk Factors Reveal?


California-based Nvidia (NVDA) is a multinational semiconductor company. It makes graphics processors used in gaming devices, data centers, self-driving cars, and other professional markets. In a business expansion move, Nvidia agreed to acquire chipmaker ARM for $40 billion in cash and stock.

With this in mind, let us look at the company’s recent financial results and understand its key risk factors. (See Insiders’ Hot Stocks on TipRanks)

Q3 Financial Results

Nvidia reported a 50% year-over-year increase in revenue to $7.1 billion for the third quarter ended October 31. It posted adjusted EPS of $1.17 against $0.73 in the same quarter last year.

The company ended the quarter with $1.3 billion in cash. It plans to distribute a quarterly cash dividend of $0.04 per share on December 23. (See Nvidia stock charts on TipRanks).

Risk Factors

According to the new TipRanks’ Risk Factors tool, NVDA’s main risk categories are Finance & Corporate, Tech & Innovation and Macro & Political, which account for 19% each of the total 21 risks identified for the stock.

In an updated Financial and Corporate risk factor, Nvidia has reminded investors that it has $12 billion in outstanding notes maturing between 2021 and 2026. It also has a credit agreement that allows it to borrow up to $575 million and potentially an additional $425 million under a revolving loan facility. However, the company cautions that servicing debts may consume much of its cash flow.

Furthermore, the credit agreements may limit its ability to obtain future financing. As a result, Nvidia wants investors to know that it may experience challenges in funding capital expenditures and acquisitions. The debt burden may also make the company more vulnerable in adverse economic conditions.

Regarding the $7 billion acquisition of Mellanox and the pending purchase of ARM, Nvidia reminds investors that it may not achieve the anticipated benefits of those acquisitions. It has mentioned potential challenges such as integrating the acquired businesses and surprise liabilities that may be uncovered in the future.

The Finance and Corporate risk factor’s sector average is at 40%, compared to NVDA’s 19%. Shares of the company have gained about 143% year-to-date.

Analysts’ Take

Following Nvidia’s third-quarter earnings report, Benchmark analyst David Williams maintained a Buy rating on the stock and raised the price target to $365 from $230. Williams’ new price target suggests 14.98% upside potential.

Consensus among analysts is a Strong Buy based on 22 Buys and 2 Holds. The average Nvidia price target of $359.09 implies 13.11% upside potential to current levels.

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