What is Nvidia Corporation (NASDAQ:NVDA) stock really worth? That’s the main question on investors’ minds amid a rapid decline in NVDA stock that itself followed a rapid one-year run of 350%.
My answer? New investors who have waited patiently for a good entry point are finally being rewarded. Nvidia stock has bottomed.
NVDA shares once traded at 41 times projected 2018 earnings in the midst of the company’s momentum-fueled run. But Nvidia has dropped 18% over the past month or so, dropping that valuation to 29. Yes, that’s still about 10 points above the S&P 500’s average forward P/E, but it still makes more sense given that analysts expect roughly 20% earnings growth next year.
As such, I continue to expect NVDA stock to reach $130 to $135 in the next 12 to 18 months, delivering 32% to 37% returns in 2017.
The reason for the stock’s decline of late? Aside from fresh money now going into Advanced Micro Devices, Inc. (NASDAQ:AMD), Nvidia stock has been the subject to multiple downgrades. This is even though the semiconductor company not only crushed Wall Street’s fourth-quarter estimates on almost every metric, Nvidia also raised full-year guidance.
The first downgrade came from BMO Capital, which not only downgraded NVDA stock to “Underperform” from “Market Perform,” the analyst also slashed Nvidia’s price target to $85 from $100. Based on Friday’s closing price, the downgrade assumes additional declines of almost 15%. BMO insists Nvidia is overvalued and says the strong earnings growth the company has enjoyed has begun to slow.
Moreover, the firm added that competition will begin to impact Nvidia.
Notably, AMD — which has been on tear over the past three months, soaring some 53% — is likely the subject of the change in competitive landscape to which BMO refers. Likewise, Intel Corporation (NASDAQ:INTC) is now seen as a subtle threat, despite the fact that Nvidia’s Datacenter revenue surged a whopping 205% year-over-year, eating Intel’s lunch.
Based on the company’s first-quarter revenue guidance of $1.90 billion — higher than consensus estimates of $1.87 billion — Nvidia is showing no signs of slowing down.
Bottom Line for NVDA Stock
After a dominant 2016, some analysts are now gun-shy about NVDA stock can do going forward, suggesting Nvidia has become a victim of its own success.
Nevertheless, despite the recent declines, long-term investors should remember why they’ve bet on Nvidia stock. And given that the company’s fundamentals have not changed, despite the recent downgrades, now’s the time to add to your positions.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
