🔮 Better than the Oracle? Our Fair Value found this +42% bagger 5 months before Buffett bought itRead More

Richly-Valued Chip Giant Nvidia Has No Room for an Earnings Slip-Up

Published 2022-02-16, 10:10 a/m
© Reuters
US500
-
NVDA
-
IXIC
-
NVDC34
-

(Bloomberg) -- With major earnings letdowns from Netflix Inc (NASDAQ:NFLX) and PayPal Holdings Inc (NASDAQ:PYPL) still fresh in the memory, the bar is high for Nvidia (NASDAQ:NVDA) Corp. given that the chipmaker’s valuation far exceeds most U.S. benchmarks and its rivals.

Even after being caught up in the selloff that’s pummeled fast-growing technology stocks, Nvidia trades at about 50 times projected profit and is 2-1/2 times more expensive than the Philadelphia semiconductor index average, according to Bloomberg data.

Wedbush analyst Matt Bryson expects a “strong” fourth-quarter and outlook when the maker of graphics processors reports later on Wednesday. “Our concern remains predominantly tied to valuation,” he said.

The stakes have never been this high for Nvidia as the Federal Reserve’s aggressive rate hike path has roiled stocks with extreme valuations. The shares have been a star performer over the past decade, returning a whopping 7,000%, although more than $170 billion in market value was wiped out in the recent selloff.

What’s more, analysts see more gains: 39 of the 47 that cover the stock have buy ratings and the average price target points to 30% upside in the next 12 months. However, the combination of rapid revenue growth and a lofty valuation has made Nvidia prone to violent swings, such as the final three months of 2018 when it tumbled more than 50%.

Rising Estimates

Investors will be looking for forecasts and commentary in the earnings that show Nvidia is expanding at a clip that can support its valuation, especially in its data center business. Despite the recent share-price drop, analyst estimates for revenue and profit in the current fiscal year have crept up in the past two months, according to Bloomberg data.

For the fourth quarter, Nvidia is projected to deliver earnings per share excluding some items of $1.22 on revenue of $7.4 billion. That would represent year-on-year growth of 58% and 48%, respectively.

“Nvidia is very expensive, but it is expected to grow much faster than other names in the space,” Deepon Nag, senior research analyst for technology hardware at Clearbridge Investments, said in an interview. “The near-term setup looks pretty favorable.”

Tech Chart of the Day

The NYSE Fang+ Index, home to the likes of Apple Inc (NASDAQ:AAPL)., Amazon.com Inc (NASDAQ:AMZN). and Alibaba (NYSE:BABA) Group Holding Ltd., is underperforming the benchmark S&P 500 Index in the first quarter to date. If losses hold, it will mark a third straight quarter of decline. Investors have been reducing bets on these fast-growing stocks as central bankers prepare to raise rates rapidly.

Top Tech Stories

  • Airbnb (NASDAQ:ABNB) beat revenue and profit estimates in the fourth quarter, bucking a resurgent wave of Covid-19 infections and heading into this year even stronger than before the pandemic
  • Roblox shares tumbled in premarket trading after fourth-quarter bookings missed analysts’ estimates, reflecting a retreat from the pandemic-inspired boost over the last two years
  • Mark Zuckerberg unveiled a list of principles for work at Meta Platforms Inc. in which he calls its employees “Metamates”
  • The U.S. Chamber of Commerce is taking up the cause of giant technology companies facing fresh antitrust threats from the Biden administration and Congress
  • Alphabet’s Wing unit elevated its leading technology official to head the company as it seeks to rapidly expand its drone delivery operations, including in the Dallas suburbs

©2022 Bloomberg L.P.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.