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NVIDIA Stock: A Price Target and Valuation Update

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NVIDIA (NVDA) stock has tumbled 32.5% in the past year amid the burst of the cryptocurrency bubble and trade war fears. Meanwhile, the stock started gaining strength since the company posted upbeat second-quarter results in August. A few analysts are also betting on the stock.

NVIDIA stock closed 4.78% higher and stood at $181.31 on October 3. The surge in the stock came as Wall Street rebounded on expectations of a federal rate cut later this month.

At this closing price, NVIDIA’s market capitalization stands at around $110.4 billion. The stock is trading 35.4% lower than its 52-week high of $280.80. NVDA is trading 45.7% higher than its 52-week low of $124.46.

NVIDIA stock has risen 36.1% this year. NVIDIA outperformed semiconductor rivals Qualcomm (QCOM), Intel (INTC), and Broadcom (AVGO), which generated 35.8%, 8.7%, and 8.9%, respectively, this year.

Chip stocks Advanced Micro Devices (AMD), Marvell (MRVL), and Micron (MU) have gained around 55.4%, 48.1%, and 36.9%, respectively, this year. The VanEck Vectors Semiconductor ETF (SMH) has gained about 35.4%, while the S&P 500 rose 16.1% in the same period.

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Analysts’ recommendations and target price

Among the 39 analysts covering NVIDIA stock, 27 have a “buy” rating on the stock, up from 26 last month. Nine analysts have a “hold” rating on the stock—down from 12 last month. Only three analysts have a “sell” rating on the stock—up from 2 last month.

Currently, analysts have an average target price of $189.40 on NVIDIA stock. On October 3, the stock was trading at a discount of 4.3% to analysts’ 12-month target price of $189.40. The median target price was $190.00 on the same date.

Technical level

With a 14-day RSI (relative strength index) score of 58.7, the stock is currently neutral. Notably, an RSI reading above 70 indicates that a stock is in “overbought” territory, while an RSI level below 30 means that the stock is in the “oversold” area.

On October 3, NVIDIA stock closed near its Bollinger Band mid-range level of $178.04, which indicates that the stock is neither overbought nor oversold.

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NVIDIA stock’s valuation

Analysts expect NVIDIA’s revenues to fall 8.01% in fiscal 2020 (ending January 2020) to $10.8 billion, compared to 20.6% growth in fiscal 2019. Its sales are expected to improve significantly—around 20.0% in fiscal 2021 to $12.9 billion.

Analysts also expect its adjusted EPS to decline about 18.7% in fiscal 2019. However, its earnings are expected to grow 31.9% in fiscal 2021.

However, NVIDIA stock appears expensive with a PE ratio of 33.6x, and an enterprise-value-to-revenue ratio of 9.64x for fiscal 2020. The company’s negative earnings and revenue growth projections are significant factors in these ratios.

What’s ahead for NVIDIA stock?

We are optimistic about NVIDIA stock, as it has shown strength across all platforms in the second quarter. NVIDIA is focusing on the artificial intelligence (or AI) market. There is high demand for AI chips in supercomputers, smartphones, cloud services, and data centers.

NVIDIA’s data center segment is also gaining momentum, and the company is looking to boost its gaming segment. Recently, it partnered with Microsoft (MSFT) to offer its RTX ray-tracing technology to Microsoft’s video games. The chipmaker is also helping create more realistic video games with its GPUs.

Last month, Goldman Sachs analyst Toshiya Hari showed his optimism on NVIDIA stock. Hari expects NVIDIA’s gaming and data center divisions to drive the stock. However, SunTrust Robinson Humphrey analyst William Stein expects NVIDIA’s chip demand to improve.

NVIDIA is competing with AMD in an effort to regain its position in the GPU market. The upcoming launch of the GTX 1650 Ti graphics card is expected to compete with AMD’s entry-level Navi 14, the RX 5600 series. NVIDIA is expected to launch its graphics card for around $155 on October 22.

AMD’s Navi 14 GPU is hitting the markets before October 15. AMD is also rumored to release two new graphics cards—Navi 21 and Navi 23—dubbed the “NVIDIA killers” in 2020.

We expect these efforts to revive NVIDIA stock in the near term. Plus, a trade deal between the US and China can provide a boost to its stock.

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