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.
Take a look at Advanced Micro Devices, Inc. (NASDAQ:AMD), which has been pulling off a stunning turnaround. The company’s latest GPUs have gotten much more competitive and will likely make inroads with NVDA, especially because of the low pricing.
There’s even buzz that INTC will get more cozy with AMD, which would put a crimp in the sales of Nvidia (the deal with INTC and NVDA ends at the end of this month). Already AMD has snagged deals with biggies like Microsoft Corporation (NASDAQ:MSFT), Alibaba Group Holding Ltd (NYSE:BABA) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) for cloud-computing and deep-learning systems.
Speaking of INTC, the company may also be a threat because of its recent $15.3 billion acquisition of Mobileye NV (NYSE:MBLY) for a cool $15.3 billion. The deal will instantly make it a top player in the fast-growing tech market for auto systems. And yes, INTC can leverage its global customer base, which will likely mean trouble for NVDA.
Oh and then there is Qualcomm, Inc. (NASDAQ:QCOM), which is making an aggressive play for the auto market. To this end, the company has a proposed to shell out $37 billion for NXP Semiconductors NV (NASDAQ:NXPI).
NVDA is certainly an amazing company, with an incredible portfolio of technology assets. But the fact is that the valuation is at steep levels — after a the shares more than quadrupled last year — and the competitive environment is getting tougher and tougher. In the meantime, it’s probably best to wait for a better price on Nvidia stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including Taxes 2017: Saving A Bundle. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
