Top analysts including Wayne McCurrie of FNB Wealth and Investments and David Shapiro of Sasfin Securities say Nvidia presents a good buying opportunity at current levels.
Nvidia designs and manufactures computer chips, graphics processors and multimedia software and operates in two main segments:
- The graphic part includes processors for gaming, graphics, virtual processing units, virtual computing, infotainment systems and omniverse software.
- The compute and network segment includes data center platforms and systems used in artificial intelligence, high performance and accelerated computing solutions.
Nvidia’s stock price has been under extreme pressure since December 2021, when the Federal Reserve began to focus more on inflation and rising interest rates.
The company’s share price has fallen 60.3% from its high price of R333.76 in 2021.
McCurrie said the decline in Nvidia’s share price means it now presents a real opportunity for long-term value.
Shapiro agreed, saying Nvidia is a superb company operating in the right industry and offering good value at current levels.
Another strong Nvidia supporter is Cathie Wood, whose ARK funds have significantly strengthened their position in the company.
A look at Nvidia’s finances
Nvidia has seen strong revenue growth in recent years. Its two main revenue contributors, gaming and data centers, have grown revenue at an average annual growth rate of 50.8% since 2017.
However, in the second quarter of 2023, Nvidia delivered disappointing results. Its revenue of $6.70 billion was significantly lower than its first-quarter 2023 forecast of $8.10 billion.
It represents 3% year-over-year growth and is 19.11% lower than the previous quarter, as shown in the quarterly revenue chart below.
The significant decline in revenue was driven by the company’s gaming business, which contracted 33% year-over-year and 44% quarter-over-quarter.
The games market has been the biggest contributor to Nvidia’s revenue, and the contraction cannot be ignored.
Nvidia explained that the drop in growth was due to a global slowdown in demand. The company hopes to regain its fold with better inventory management and new launches.
The company has seen strong growth in the automotive market, but it contributes very little to revenue and it would be years before it could contribute significantly to revenue.
The large data center market saw very strong year-on-year growth of 61%, but remained stable quarter over quarter.
The graph below shows how the composition of Nvidia’s annual revenue has changed since 2017.
The last word
Gene Munster, the managing partner of Loup Ventures, has mixed feelings toward Nvidia due to its revenue slowdown.
He said the extent to which the business has hit the wall is remarkable, calling it one of the biggest downturns he has ever seen.
Munster noted that it’s rare for a company to recover from such a result in a subsequent quarter.
However, he said the company’s long-term outlook remains positive, with great potential in the automotive market.
If Nvidia could grow 60% per year, Munster said it was undervalued. However, it is overvalued if it only grows between 25% and 30%.
This article was first published on daily investor and is republished with permission.