Yes, Nvidia stock is now on sale (NASDAQ: NVDA)
Nvidia (NASDAQ: NVDA) the stock has weathered one of the worst tech storms, down more than 55% since the the epic technological downfall has begun. While Nvidia shares were significantly overbought at around $350 in November 2021, it is only trading around $150 now. The company’s P/E ratio has fallen significantly, and Nvidia is trading below 30 times consensus estimates for this year’s EPS. Additionally, Nvidia has substantial growth prospects and huge potential for profitability.
Nvidia is much more than just a graphics card manufacturer. Nvidia makes some of the best GPUs for gaming, digital asset mining, deep learning, and more. In addition, the company contributes to changing the world through its AI and data science initiatives, businesses that are expected to deliver significant revenue and EPS growth in the years to come. Although there may be more transitory volatility for Nvidia shares in the short term, Nvidia shares are relatively cheap now, are expected to appreciate significantly in the coming years, and are a solid medium to long-term buy. .
Nvidia – On Sale Now
Nvidia’s downfall was epic, with its share price down about 55% from its all-time high. We see Nvidia trading around a 52 week low now, levels not seen since the start of 2021. I understand Nvidia hasn’t gone down to 2020 or earlier levels, but everything is moving fast in the IT industry , and significantly lower prices may be unrealistic to expect. In fiscal year 2020, Nvidia had $10.9 billion in revenue; in fiscal 2022, the company had $26.9 billion. Next year, in fiscal year 2024, the consensus numbers are around $40 billion in income. Additionally, Nvidia was trading at around 75 forward earnings around its highs and is only trading at around 23 times profits coming now (tax consensus 2024). Nvidia’s growth is spectacular and the company has excellent prospects for profitability. Therefore, the stock has a high probability of going much higher in the long term.
Nvidia leads the gaming GPU market
In 2020, the gaming industry generated $150 billion in revenue, and analysts predict that by 2025, the gaming industry will generate $260 billion in revenue. Three companies dominate the GPU market, Intel (INTC), AMD (AMD) and Nvidia (NVDA). While Intel is the market leader in integrated graphics, Nvidia makes the best discrete graphics cards.
PC Discrete GPU Market
The lucrative discrete GPU market for PC is dominated by two companies, Nvidia and AMD. However, we see that Nvidia has the edge in this market and has gained market share over AMD in recent years. Nvidia’s market share has grown significantly from around 72% to 83% over the past three years. Also, if we look at the top-rated graphics cards, Nvidia has six out of the top eight, including the top spot (according to PCGamer.com). Therefore, Nvidia is expected to continue to dominate the dGPU market, driving significant revenue and net revenue increases as the company scales.
Nvidia Mining Cryptocurrencies
Nvidia’s dedicated GPUs are also used to mine Bitcoin, Ethereum, and other digital currencies. The cryptocurrency industry is another lucrative area where Nvidia has been able to establish a strong foothold. While the cryptocurrency industry remains volatile and declining, future bull markets should drive increased demand for Nvidia’s GPUs and other mining-related products. Again, when looking at the best graphics cards for mining, the list is dominated by Nvidia. The Top Ten GPUs for Cryptocurrency Mining include seven Nvidia GPUs and three AMD GPUs, with the top spot going to Nvidia’s GeForce RTX 3060 Ti, according to Windowscentral.com.
The massive potential of Nvidia’s AI
Did you know that Nvidia has more 370 partnerships focused on self-driving alone? Nvidia’s goal is to increase the efficiency and safety of self-driving cars through its AI solutions. Therefore, Nvidia is working with major automakers and other players in the self-driving industry to achieve its goals. The self-driving market could grow exponentially in the coming years, generating significant revenue and profits for Nvidia and other early leaders in this space.
Additionally, Nvidia excels in high-performance data analytics, accelerated machine learning, deep learning training, deep learning platforms, conversational AI, and prediction and forecasting. The company also offers a wide range of software supporting its AI-related services. In general, Nvidia is one of the best configuring companies to take advantage of the AI revolution which could be the next booming market in the next decade. As a result, Nvidia is exceptionally well set up to outperform going forward, and its stock should appreciate significantly as the company progresses.
Cheap valuation and massive growth ahead
I was very blunt about the fact that Nvidia was massively overbought last fall, and it was one of the top names I called constantly around the technology summit in November. However, that was back when the stock was above $300, and now Nvidia is around $150. The stock price has halved, but the company’s outlook is brighter than ever. Therefore, I’m beating the table on Nvidia now, as the stock is cheap relative to the company’s growth prospects. Do not mistake yourself. There is a chance that we could go lower in the short term as this bear market progresses. But the downturn won’t last forever, and Nvidia is a solid long-term buy.
If we look at next year’s (fiscal 2024) EPS estimates, Nvidia should provide about $6.48 in EPS (consensus estimates). This estimate represents a 20% year-over-year increase from this year’s forecast of $5.41. However, Nvidia has shown a distinct tenacity to beat consensus analyst EPS forecasts.
Nvidia has exceeded consensus EPS estimates in twelve of the last twelve quarters. The company’s beat rate has recently been around 5-10%. Therefore, we can expect the company to continue beating estimates by a modest margin. If we apply a 5% beat rate to this year’s EPS forecast, we arrive at approximately $5.68 EPS for fiscal year 2023, and if we use the same beat percentage for the next year we come to $6.80 EPS for FY2024. Now, Nvidia shares are only trading around $150 today, which shows that the forward P/E ratio of the company is only around 22. When was the last time we saw Nvidia trading at a forward P/E of just 22? Given the company’s relatively high revenue growth rate (estimated 26% this year and 18% next year) and a bullish setup for future expansion, 22x forward earnings is a good valuation. market. Therefore, while there is a transient downside risk, anything below $150 should be viewed as a buying opportunity for Nvidia.
Yes: Nvidia is a solid buy again
What Nvidia’s finances could look like in the coming years:
|Forward P/E ratio||22||25||27||28||28||29|
Source: The author
Nvidia’s forward P/E ratio of just 22 looks very low now, and it’s unlikely to stay that way for long. Yes, we may see temporary weakness while the bear market persists, but a multiple expansion seems very likely when conditions normalize. Therefore, we will likely see Nvidia’s advanced P/E multiple increase to 25-30 (or more) in the coming years. Of course, it is possible that the multiple could go much higher (40-80), as we saw in the previous cycle, but I keep estimates modest to remain conservative in my estimates. I also think the revenue growth rate is fair as Nvidia could see an increase in revenue due to increased crypto mining, self-driving, AI initiatives and others activities.
Nevertheless, even with conservative revenue estimates, Nvidia’s EPS is expected to increase significantly in the coming years. As we apply our relatively conservative P/E multiples to our EPS calculations, we see a strong likelihood of a significantly higher stock price going forward. Therefore, Nvidia is a solid buy here with a $300-500 target price range by 2025.
Risks for Nvidia
While I’m bullish on Nvidia over the medium to long term, technically we’re still in a bear market. Therefore, we might see the stock move lower. In a bearish scenario, Nvidia could find its base around the $120 level. However, short term dips should be transitory and not affect my medium/long term price target on the stock. Additionally, Nvidia may face increased competition in the GPU business and other areas in which the company operates.
In addition, the company could face pressure on its margins due to higher costs associated with inflation, resulting in lower profitability. Ultimately, the company could generate less growth and lower EPS than my estimated forecast. Investors should carefully consider these and other risks before committing capital to an investment in Nvidia shares.