Since reaching an all-time high in early February, Nvidia Corporation (NASDAQ:NVDA) stock has been sputtering, losing roughly 13%. This is despite the strong bull move in the overall market.
So might the current value of NVDA stock be at an attractive level now? Or maybe it’s a better idea to hold off?
Well, the fact is that Nvidia remains one of the best operators in the semiconductor industry, with a dominant position in graphics processing units (GPUs). While this technology is still primarily for gaming — which continues to be a solid market opportunity — the applications span emerging categories, such as artificial intelligence, virtual reality, self-driving cars, internet of things and cloud computing. The main reason is that GPUs can process enormous amounts of data on a cost-effective basis.
And yes, NVDA has had little trouble monetizing its valuable assets. Just look at the most recent quarter, in which revenues spiked by 55% to $2.17 billion and the adjusted earnings came to $1.13 per share. The Street, on the other hand, was looking for $2.11 billion and earnings of 83 cents on NVDA stock.
It was certainly a blow-out. But interestingly enough, it didn’t really matter — that is, at least for NVDA stock. Then again, much of the story is baked into the valuation. Consider that the price-earnings ratio is at about 40. By comparison, Texas Instruments Incorporated (NASDAQ:TXN) sports a multiple of 23 and Intel Corporation (NASDAQ:INTC) trades at 16.5.
Granted, NVDA stock deserves a premium valuation because of its torrid growth ramp. But according to several notable Wall Street analysts, the current multiple appears to still be at frothy levels.
During the past couple weeks, Instinet analyst Romit Shah put a price target of $90 on NVDA stock and analysts from BMO Capital Markets went even lower, with a $85 price target. Actually, the Wall Street consensus is for $113.59 a share, which implies only 9% upside. But it is important to note that there are some notable risk factors, which could easily weigh on Nvidia stock as well.