Shares of Nvidia (NVDA) have skyrocketed over the past thirty days, surging more than 30%, compared to a 2% rise in the S&P 500 index. The stock has risen along with the massive recovery we have witnessed in the semiconductor space over the past several weeks.
The gains in the overall chip sector suggests bargain hunters have gone shopping after seeing many chip powerhouses such as Nvidia suffered declines, leading to 52-week lows. And there could yet be more gains to be had in Nvidia, according to Bank of America analyst Vivek Arya. That's good news, given that the stock is still down some 25% from its 52-week high of around $290. The semiconductor specialist will report fourth quarter fiscal 2023 earnings results after Wednesday’s closing bell.
While citing the chipmaker's potential gains from advances in artificial intelligence technology, Arya last week boosted his price target to $255 per share, up from $215. The price target assumes potential returns of 20% from current levels of $212. Among his many catalysts, Arya also referred to Nvidia's "full stack" of accelerated silicon, systems, software and developers which puts the company in a position to "lead the nascent generative AI arms race among global cloud and enterprise customers.”
In the near term, it’s whether the company can continue to navigate through weakening demand for its chips used in the gaming end market. In the most-recent quarter, revenues from the Gaming market platform declined 51% year-over-year, while falling 23% sequentially. However, thanks to the growing adoption of cloud-based solutions and the growing hybrid work, Nvidia continues to enjoy some tailwinds in its Datacenter business which may boost its fourth-quarter revenues. To continue to the stock's upward trend the company on Wednesday will need to talk positively about its growth prospects for the next quarter and beyond.
For the three months that ended January, Wall Street expects the Santa Clara, Calif.-based company to earn 81 cents per share on revenue of $6.01 billion. This compares to the year-ago quarter when earnings came to $1.32 per share on revenue of $7.64 billion. For the full year, earnings of $3.26 per share would decline 26.5% year-over-year, while full-year revenue of $26.92 billion would be flat year-over-year.
The bearishness in the stock has driven by the company’s expected year-over-year declines in earnings and revenue which suggests a meaningful deterioration of business fundamentals, particularly in the graphics unit. The weak gross margins, due to declining prices, have also taken down Nvidia’s earnings growth estimates significantly. The company and the entire sector have also had to deal with rising interest rates which has pressured average selling prices of its chips.
Analysts believe this trend may impact the company’s gaming revenue and datacenter revenue. However, the chip giant has navigated through these headwinds to produce revenue beats in ten straight quarters. In the third quarter, revenues were $5.93 billion, which beat estimates by $110 million. However, it represented a year-over-year decline of 16.5%. Adjusted EPS of 58 cents per share, however, missed estimates by 12 cents.
The management touted the data-center business, which saw revenue rise 31% year-over-year to $3.83 billion, driven by increased demand of Nvidia's computing platforms that support data analysis. "We are quickly adapting to the macro environment," said Chief Executive Jensen Huang in a statement. Huang added that the company was "correcting inventory levels and paving the way for new products.”
It also appeared that the Gaming business which had been under pressure might have finally reached the end of the down cycle. As such, the guidance on Wednesday will be the key factor in the stock’s near-term direction.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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