By Senad Karaahmetovic
Shares of NVIDIA (NASDAQ:NVDA) are down more than 2% in pre-market Thursday after HSBC initiated research coverage with a Reduce rating.
Analysts are bearish on Nvidia stock over the next year. Their price target of $136 per share implies a downside risk of 23% relative to yesterday’s closing price.
“NVIDIA’s key products are its distinctive graphic chips (GPUs), which can be used for general-purpose processing and applications beyond high-end gaming. However, these face an inventory correction that we see extending into 1H23, longer than the market expects, on weak demand from a collapse in crypto mining and slowing server unit growth that we believe isn’t fully priced in,” they wrote in the initiation note.
Hence, the analysts added that the potential earnings downside is still not fully priced in. Their estimates sit 9% below consensus.
“Our most bearish scenario – weaker server demand – implies earnings downside of 11% to our base case. We’d become more constructive if NVIDIA can fully digest the graphic GPU inventory correction quickly.”
The analysts are more bullish on NVDA as far as the mid and long-term outlook for the stock is concerned. Nvidia is seen as a “leading supplier” of chips for autos, AI enterprise software, and metaverse applications.
“NVIDIA has a combined total addressable market (TAM) of USD400bn, but it relies mostly on AI, where it dominates the market with an 80% share, as revenue from software isn’t big enough for NVIDIA to have revenue targets despite the large TAM while automotive revenue accounts for just 3% of total FY23e (year ending January 2023e) sales,” the analysts added.
Nvidia stock closed at $176.74 yesterday.