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Wednesday, December 7, 2022

Nvidia: Expect Another Beat and Raise but Valuation Is an Issue, Says Analyst

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Most of the marquee names have already delivered the quarter’s financials but not all. One industry giant yet to report its quarterly performance is Nvidia (NVDA). The chip behemoth will deliver fiscal second-quarter results after the market close on Wednesday, August 18th.

It’s going to be another good one according to Deutsche Bank’s Ross Seymore.

“We expect NVDA to deliver another beat and raise, with DB estimates near the high end of guidance for its Jul-qtr and +3% above Street for its Oct-qtr reflecting continued momentum in Gaming, Data Center, and Provis,” the 5-star analyst said.

Growth in the company’s main revenue driver, Gaming, is expected from the early stages of ray-tracing adoption amongst the “installed base.” PC gamers also have “better access” to the supply of GPUs after the company modified the GPUs to limit their use in crypto mining and make sure supply reaches the intended gaming customer base rather than crypto miners.

As additional supply is brought on, and as “demand from both hyperscalers and enterprise recovers,” Data Center growth is expected to continue in 2Q and 2H. The replenishment of presently lean inventory levels will also be a tailwind into the year’s second half.

So, growth is the key here. That said, one key area investors would like to see more growth in has become, well, overgrown: the soaring share price.

As has become customary over the past few years, Nvidia’s year-to-date performance (up by 53%) has once again surpassed both the SOX’s 20% gain and the S&P 500’s solid 18% uptick as investors have cheered on a “solid portfolio,” showing confidence in the “high-growth semis businesses, while also reflecting optimism around the co’s push into software/whole system solutions ecosystem.”

For Seymore, however, the shares have no more room to run, and in fact they look overvalued.

“NVDA shares trade near ~50x our above-Street CY22 EPS, and ~40x our above-Street CY23 EPS. We believe current valuation levels appropriately reflect growth/fundamental upside, but also remain cautious around the degree of revenue/growth inflation from crypto (DBe as high as ~$800m rev contribution/qtr),” the analyst summed up

Based on the above, Seymore rates NVDA shares a Hold along with a $150 price target. This figure suggests the stock is currently overvalued by 25%. (To watch Seymore’s track record, click here)

The Deutsche Bank analyst, however, is on his own here. All other 28 recent NVDA reviews are to Buy, naturally culminating in a Strong Buy consensus rating. That said, the Street appears to think the shares are trading close to their fair value. Going by the $202.42 average price target, the current share price is 4% below that figure. (See Nvidia stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The post Nvidia: Expect Another Beat and Raise but Valuation Is an Issue, Says Analyst appeared first on TipRanks Financial Blog.

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