If you're a longtime follower of the stock twits website, you might have noticed NVDA (NASDAQ:NVDA) has been on the downhill spiral lately. The stock is currently sitting at an 83 out of a possible 99 EPS rating, and has been dragging along the entire semiconductor group. Is this the end of the tween?
Nvidia is a semiconductor company that provides chips for home computers, video games, and in-vehicle entertainment. It also offers products for artificial intelligence, self-driving vehicles, and cloud gaming. The company works according to the fabless principle, which means that it contracts with foundries to make its chips.
Over the past year, Nvidia's stock has outperformed more than one third of the companies in the S&P 500. Analysts have a consensus price target of $250 for the company. However, the stock has fallen 40% in the first half of the year. This decline is due to the changing macroeconomic environment. There are several factors that contribute to the decline in Nvidia's share price.
One of the major challenges facing Nvidia is the increasing prices of the chip. The rise in the prices of the chips has been driven by a pandemic that affected the supply of the chips. Consequently, the demand for Nvidia's chips increased substantially. In turn, Nvidia scaled back on its margins.
Another worry for Nvidia is the Russian invasion of Ukraine. The war between Russia and Ukraine has caused a number of headaches for the chip industry. In particular, China has been experiencing supply chain issues. These issues are affecting Nvidia, which derives a large portion of its revenue from Asia. Other worries include trade restrictions in the United States.
Despite these factors, the company remains well-positioned for the future. Nvidia's management has done a great job of staying on course. They are continuing to expand in growth areas. For example, in the last two years, Nvidia's data center income increased by 61%. Similarly, the company has been developing processors for cryptocurrency mining, which could be another growth driver.
The company has a solid base of cash, which it can use to invest in new technologies. It is also a leader in the field of AI and self-driving cars. By incorporating these new developments, Nvidia can create a strong moat against its competitors.
NVDA is one of the leaders in the semiconductor market. Its revenue was near 50% yearly growth, which is a record. However, the company's profitability decreased by 51% in the fiscal second quarter. Overall, the company reported non-GAAP earnings of $1.32 per share. Despite the slowdown, the company still outperformed Wall Street estimates.
In addition to its expertise in AI and self-driving cars, Nvidia also has a growing presence in the data center market. Moreover, its cloud gaming service has the potential to become a growth driver. Additionally, the company's market platforms achieved record revenue for the fourth quarter.
Investors have a lot of choice when it comes to investing in Nvidia stock. Some analysts recommend holding the stock, while others advise against it. While a few analysts have recommended selling the stock, the majority of them are bullish on its future.
NVDA's semiconductor group is also lagging
Despite NVDA's (NASDAQ:NVDA) recent gains, the company's semiconductor group remains lagging. It is still below key technical levels. This makes it a stock to watch in the coming months.
As demand for personal computers continues to fall, analysts are worried that the industry could face an inventory glut in the near future. Although this would likely be temporary, a number of analysts are predicting that the chip stocks will have a rough year in 2023.
A key challenge for the semiconductor group is the growing uncertainty surrounding economic and trade policies. The Russia-Ukraine war also puts critical materials like neon at risk. While these threats should be addressed by policymakers, they are a concern for the semiconductor industry in general.
Semiconductor stocks have been in a tailspin this year due to supply chain challenges. Companies have been struggling to keep up with demand for chips, and have had to ship chips at reduced rates to customers. Because of the tight supply, some analysts are predicting that the semiconductor sector could be in for a rough year in 2023.
One of the most influential companies in the semiconductor industry, Nvidia, has been expanding in the cloud gaming and metaverse applications. These technologies have the potential to stoke more demand for its chips. But the company's overall revenue growth has been disappointing. In the fourth quarter of 2018, Nvidia saw its revenue decrease 19 percent, compared to the previous quarter. To fix this, the company cut its guidance.
According to the Semiconductor Industry Association, worldwide semiconductor sales were up 7.3% in July. Asia accounted for 13.1% of the total, while the Americas and Europe accounted for 20.9% of the total. Considering the growth in the Americas, Japan and China, the world's semiconductor market is expected to grow at a slower pace in the future. However, the lack of growth in PC processors could make the next few years particularly tough for the industry.
Other worries include the increasing rate of inflation and interest rates. If the economy slows down, the demand for semiconductors will drop. Furthermore, with the advent of cryptocurrencies, the demand for chips could increase. TSMC, which is a partner to AMD, has been investing heavily in leading-edge manufacturing technology. TSMC has spent $92 billion on CapEx over the past two years, and is investing another $210bn over the next two years. TSMC is confident that the technological edge will help it survive the industry's slowdown. Applied Materials (NASDAQ:AMAT) and Micron Technology (NASDAQ:MU) are other leading-edge semiconductor companies. These companies have also been hurt by downgrades from Goldman Sachs. Yet, these are large fabless companies, and therefore, don't have the same strains on their balance sheets that other companies do.
Another concern for the NVDA semiconductor group is its lagging stock price. The company is currently trading at a PEG ratio of 2.09, a ratio commonly used to compare the value of a stock to its expected earnings. Compared to the S&P 500's PEG ratio of 2.1, NVDA's is lower.
NVDA's Elliott wave analysis
NVDA's stock is currently trading near its pre-FUD price of a few months ago. A quick perusal of its latest quarterly report confirms that. It has a lot of competition in the high-end GPU market with companies like Intel and Samsung. However, its stellar financials have remained intact and its dividend is still a steal at $0.45 a share. The company also recently announced a slew of mega-million dollar deals including the acquisition of gaming company Epic Games. That's good news for NVDA shareholders but it's not so good for the company's employees. Luckily, the company has a penchant for rewarding its most loyal investors with stock options. This is a sign of how well the company is run.
NVDA's cult following amongst video game enthusiasts has led to a spike in demand for its products and services. In fiscal year 2021, sales jumped by more than 53%. Even with the bump, NVIDIA's net income was more than $10 billion. But, the company is still a long way from its peak earnings of more than $4 billion. With that said, NVDA's stock price isn't cheap. While some may argue it is a bargain, the company's P/E ratio of nearly 40 is not. If you're looking to get in on the action, you might want to take a cue from the company's competitors and wait for the price to drop. Just keep in mind that a price dip of this magnitude won't come easy.
There is no guarantee that you will hit it big, but given the company's track record for high-end gaming software and hardware, a well-timed acquisition could pay off handsomely. As with any high-risk investment, a little bit of luck is all you need to make the most of your money