Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

NVIDIA: After A 100% Run-Up This Year, Is It Too Late To Buy The Stock?

Published 08/24/2020, 09:58 AM
Updated 09/02/2020, 02:05 AM

After soaring 76% in 2019, shares of chipmaker NVIDIA Corporation (NASDAQ:NVDA) are on fire again. The stock has more than doubled in 2020, fueled by surging demand for its chips used in data centers and gaming consoles.

NVDA Weekly 2017-2020

A strong and impressive rally in NVIDIA shares during the current global health crisis clearly separates this semiconductor stock from the rest of the crowd. NVIDIA's shares have hugely outperformed the Philadelphia Semiconductor Index, which is up about 19% since the start of 2020. NVIDIA gained about 4.5% on Friday to close at $507.34.

The key question for investors, however, is just how much more runway exists for this stock, especially when it’s trading at the highest price-to-earnings multiples in nearly a decade.

After the stock's powerful rise this year, NVIDIA is now one of the most richly valued chip stocks with a price-to-earnings ratio of 86.36, fetching almost three times the semiconductor group’s average multiple of 30. That makes the stock susceptible to correction on any negative surprise, especially when the economic and geopolitical environment remains fragile.

Santa Clara, California-based NVIDIA is the biggest maker of graphics chips used in personal computer gaming. Over the past few years, the chipmaker has successfully adapted its technology for the Artificial Intelligence market, creating a new multi-billion-dollar business.

Still, the majority of the company’s sales come from PC gaming, where NVIDIA’s graphics chips create the most realistic experiences. Top-of-the-line GeForce parts cost more than many consumers spend on a whole PC.

Bullish Forecasts

NVIDIA’s last earnings report provided some mixed signals about the company's performance for the rest of the year. While sales figures from data centers soared 167% and gaming was up 26% in the second quarter, Chief Financial Officer Colette Kress said during a conference call that sales will grow in the “low-to-mid single digits” percentage range in the fiscal third quarter, compared with the previous quarter.

While demand from major cloud service providers remains solid, the company has a more “mixed” outlook on spending by companies in some industries, the CFO added during the conference call, as cited by Bloomberg. NVIDIA is also facing some demand slowdown from cyclical industries, such as autos.

But despite this cautious note from management, analysts are generally upbeat about NVIDIA.

Bank of America analyst Vivek Arya raised his price target on the stock from $520 to a high of $600, an 18% upside from Friday's close.

Arya based his bullish forecast on continued secular momentum with new product cycles (next gen 7nm Ampere launch) and recovery in cyclical autos offsetting a potentially ‘lumpy’ data center business. According to the analyst: 

“Bigger picture, we believe NVDA has an unassailable hardware / software / developer lead in some of the largest and fastest growing markets in semis/tech (AI, Gaming, Autonomous), all derived from a common architecture.”

Jefferies analyst Mark Lipacis, who raised his price target to $570, says NVIDIA has been able to create an ecosystem in chip manufacturing that powers the heart of AI and machine learning.

“We think the company will continue to surprise on the upside, and wouldn’t be surprised to see NVDA undertake more M&A to build out its data center system capabilities,” he said in a note.

BMO Capital analyst Ambrish Srivastava also maintained his outperform rating while raising its price target to $565 from $425 in a recent note.  

"Given the continued run in shares, expectations are high. However, we expect the company to deliver on earnings and expectations."

Bottom Line

NVDA is well-positioned to benefit from the global shift to working, studying and entertaining from home. This trend has produced a perfect growth scenario for NVIDIA which has chips to satisfy this demand. In the short-run, there is little reason to believe that the current rally has run its course.

Latest comments

Sounds like author has vested interest - overpriced bloated stockWill see 300 or below by end if year
I think the economy start recovered slowly stimulus start active the market
this is not an objective article ,,,, price is almost at jupiter ,,,, trying to justify such a baloon is actually not goodwill,,,, wonder how this author is going to defend this article when the bsloon pups , when nvidia baloons pup , the share ptice looses % 50 , look at 2018
One thing people miss is AI. Graphic GPU's are designed to process X, Y, Z and delta coordinates. That is what graphics uses to display a pixel. Just so happens that is what advanced AI needs, too!
Its a bubble.. companies reenforced their position so they would be less exposed to the economy crisis, this is what drove price.I think there are nearing their growth potential and AMD will chip they low and medium Pc gaming segment.
your understanding is wrong. not everyone is equally affected.
I don't see Nvidia being worth so much. As computer enthusiastic AMD it's much haed from competition Nvidia and Intel and may still be able to grow heaven more in the future. Nvidia it's for sure overvalued as much of 50 to 60%. I hope to be wrong but look at graphic card devision. More and more are switching to AMD.
A thing is worth whatever someone is willing to pay for it.
A thing is worth whatever someone is willing to pay for it.
Come on Anwar, I cant believe you said that about this bubble
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.