Wall Street Is Finally Bailing on Nvidia Corporation (NVDA) Stock

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The hottest stock in the entire S&P 500 in the past two years may have finally run out of steam. Nvidia Corporation (NASDAQ:NVDA) is up an incredible 357.6% in the past two years. Unfortunately for NVDA stock bulls, the tide may have turned in 2017. While the S&P 500 has continued its Donald Trump rally and surged to new all-time highs, NVDA stock is down 5.4% year-to-date.

NVDA Stock: Wall Street Is Finally Bailing on Nvidia Corporation (NVDA) Stock

Source: via Nvidia

The company has delivered some strong growth numbers in the past two quarters. But the roadblock for NVDA shares has likely been the growing number of Wall Street firms that are jumping ship on the stock. In late February, Nomura and BMO Capital became the latest in the parade of firms to downgrade the stock.

It’s difficult to maintain bullish momentum amid a stream of negative headlines from Wall Street.

The Simplest Explanation for NVDA Stock

For investors trying to figure out why Wall Street is so down on NVDA stock, it’s always best to start with the simplest possible explanation. Nvidia is certainly overheated for the time being. It’s difficult for any $50 billion-plus company to maintain the type of momentum that Nvidia has had in the past two years without some consolidation along the way.

Analysts recognize that NVDA investors need a chance to take profits on the trade.

The company also needs a chance to let its impressive fundamental growth metrics catch up to its mind-boggling market cap growth. Nvidia’s Q4 revenue growth was 55% year-over-year. That growth clip is extremely impressive. Still, it’s well short of the 225% leap in Nvidia’s market cap in that time.

What Wall Street Has to Say About NVDA Stock

As it turns out, Wall Street’s concerns extend beyond simple valuation. Nomura issued one of the recent downgrades that sent NVDA stock tumbling. Analyst Romit Shah expressed concern about the durability of the company’s gaming growth and cut NVDA stock to “reduce.”

“We believe consensus is underappreciating a slowdown in gaming,” Shah wrote. “Investors should recognize that the market’s enthusiasm for Nvidia’s emerging businesses [in data centers and automotive] is historically short-lived.”

BMO Capital followed up on Nomura’s downgrade by issuing its own downgrade to “underperform.” Analyst Ambrish Srivastava expressed concerns that Nvidia’s strong growth is due to a “perfect storm” of temporary market dynamics. He believes Nvidia’s transition to FINFET technology unleashed major pent-up demand, but that demand is unlikely to last much longer.

In addition to BMO and Nomura, other, smaller research firms including CLSA, ROTH Capital and Instinet either downgraded NVDA stock or initiated negative coverage in the month of February. If larger firms that cover the stock begin to follow suit, NVDA’s downward drift could quickly morph into a full-fledged market sell-off.

Not Everyone Is Bearish on NVDA Stock

Despite the increasing negativity on Wall Street, at least one prominent short seller believes additional near-term downside is limited. Notorious short seller and Citron Research founder Andrew Left initiated a short position in Nvidia back in December. At the time, he expressed concerns over the sustainability of the company’s margins. He also pointed out the significant competition it is facing in the data center market.

Left recently covered his short position in NVDA stock, opting instead to initiate a new short position in Mobileye NV (NYSE:MBLY). Left abandoned his NVDA short even though he said in December the stock “belongs at $90.”

Other firms remain bullish on NVDA stock as well, even after the big run. RBC Capital reiterated an “outperform” rating on Feb. 10. Canaccord Genuity and UBS also both reiterated “buy” ratings back in January.

As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.

Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/nvidia-corporation-nvda-stock-bailing/.

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