Analysts expect NVIDIA’s stock to be range-bound
Wall Street analysts have a “buy” recommendation for NVIDIA (NVDA) but have reduced their price targets. They reduced their median price target for the stock from $300 in October 2018 to $181 in February 2019, down ~40% as NVIDIA’s stock fell 45%.
The decline in the price target comes as demand uncertainty has plagued the entire semiconductor industry—and NVIDIA is no exception. Plus, NVIDIA is suffering from the crypto bubble burst, which aggravates downside risk. Some Wall Street analysts expect NVIDIA’s stock to be range-bound until there’s clarity that growth will rebound in the second half of fiscal 2020.
According to a CNBC article, Deutsche Bank analyst Ross Seymore stated that NVIDIA’s recent earnings don’t provide clarity on two growth drivers—gaming and data center. He questioned the company’s growth potential in gaming without ray-tracing and higher average selling prices. This question came up as the company’s Turing-based RTX gaming GPUs are seeing slow adoption due to a lack of an ecosystem supporting ray tracing and a higher price.
Seymore questions whether NVIDIA’s data center revenue decline is a one-time issue or because of rising competition from Advanced Micro Devices (AMD), which reported strong revenue growth and design wins in the data center space. NVIDIA’s fiscal 2019 fourth-quarter data center revenue fell 14% sequentially for the first time in over three years.
The CNBC article stated that RBC Capital’s analyst Mark Mahaney believes fiscal 2020 is uncertain for NVIDIA. Although the company expects strong growth in the second half, it depends on two factors:
- growth in its core gaming revenue after excluding game consoles and crypto cards
- its data center growth rate as competition picks up
So far, NVIDIA has enjoyed double and triple-digit data center revenue growth due to lack of competition.
NVIDIA’s core gaming revenue will depend on the clearance of excess GPU inventory and the launch of ray-tracing–supported games in the second half.
While some analysts find NVIDIA’s fiscal 2020 guidance to be aggressive and some remain unclear on the guidance, all are optimistic about the company’s long-term growth opportunities. We’ll look into them in the next part of this series.