Why Nvidia Stock Tanked Today
What happened
Shares of Nvidia (NASDAQ: NVDA) stock fell off a cliff Monday morning, tumbling 4% by noon ET. That's actually a bit surprising though, given the news today:
Goldman Sachs just reinitiated coverage of Nvidia.
Image source: Getty Images.
So what
What's more, Goldman Sachs didn't even diss the stock -- to the contrary, Goldman kind of likes Nvidia.
"We continue to view Nvidia as an industry leader in accelerated computing," said the analyst, "and expect the proliferation of [artificial intelligence and machine learning] to drive earnings growth and a valuation multiple that exceeds the industry average over the long-run."
Furthermore, Goldman sees a possible "positive catalyst for the stock" in Nvidia's upcoming annual Graphics Technology Conference (GTC 2022) to be held from March 21 to March 24. "We expect management to unveil new products and provide more detail on its expanding SAM," said Goldman in a note covered by StreetInsider.com.
Now what
All that being said, Goldman Sachs warned that that at its current share price of $219 and change, "risk/reward on the stock is fairly balanced on a 12-month basis."
For this reason, Goldman declined to recommend the semiconductors star, assigning Nvidia only a $245 price target and a neutral rating. Moreover, the company didn't give even a hint of being interested in changing its mind (or its rating) on Nvidia in the near future, saying instead, "We await normalization in consumer GPU demand and/or a better entry point before turning more constructive on the stock."
And sad to say, I have to agree with Goldman Sachs on this one. Although it's true that Nvidia stock has gotten a lot cheaper -- losing about a third of its value over the last three months -- at a stock price currently 63 times trailing earnings, Nvidia still looks too expensive based on its projected 21% long-term annual earnings growth rate.
Simply put: A price-to-earnings growth ratio of 3 is too high a price to pay -- even for Nvidia.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Goldman Sachs and Nvidia. The Motley Fool has a disclosure policy.
