It has been a bumpy year so far for Nvidia (NASDAQ:NVDA). Despite analysts earmarking NVDA stock as a great bet in the chipmaking space, shares haven’t necessarily lived up to the billing. Although they’re up over 16% since the start of January, that doesn’t make up for the catastrophic losses of 2018.
However, several analysts still maintain bullish calls on Nvidia stock. Matthew Ramsay at Cowen said Nvidia’s promise as a top chipmaker in multiple high-growth markets makes NVDA a wise investment choice for long-term investors. He pointed to the firm’s opportunities in rapidly expanding industries like gaming, data centers and automobiles as catalysts to deliver double-digit growth over the next few years.
Ramsay isn’t alone either. According to The Wall Street Journal, out of 38 analysts covering NVDA stock, 21 rated shares a buy. If you include overweight ratings, 61% of the analysts covering Nvidia are bullish. On average, analysts expect the equity to deliver an upside of about 17%.
First-Half Challenges Weighed on the Nvidia Stock Price
But is that growth on its way, or has NVDA lost some traction as the “best in class” chipmaker?
InvestorPlace’s Vince Martin thinks the answer to that question is coming up in July when Nvidia reports its quarterly results. That’s because management has been promising a stellar second half of the year. Furthermore, investors have been willing to trust in a major recovery in the final two quarters.
Part of the issue with the first half of 2019 was the fact that Nvidia was up against impossible comparisons. Last year, the cryptocurrency explosion provided the firm with huge numbers during the first two quarters. This year, with most cryptocurrencies not named bitcoin still deflated, the company can’t keep pace.
Naturally, this dynamic placed a lid on the Nvidia stock price.
Second-Half Growth Narrative for NVDA Stock
However, the second half of the year should lower the nominal barrier for comparisons. For one thing, CFO Colette Kress said data-center demand should pick up, further driving growth. Plus, shortages at Intel (NASDAQ:INTC) have opened the door for Nvidia to grab their market share.
However, it’s not the only one staking a claim of Intel’s pie. Advanced Micro Devices (NASDAQ:AMD) is also looking to grow beyond its current market share.
Although shares of AMD have been outperforming NVDA all year, the general consensus among analysts has been that Nvidia stock is the better buy: both because the firm’s equity price had more upside and because the company itself was a stronger play. However, the tides may be turning when it comes to an AMD and Nvidia comparison.
Christopher Rolland at Susquehanna cautioned investors that the upside for Nvidia stock is shrinking as AMD becomes more competitive. He believes that AMD’s Navi chip will help the firm gain market share over the next year which could cut down on Nvidia’s growth potential.
Because of that, Rolland lowered his target for the Nvidia stock price to $190 from $215.
Rolland’s revised forecast came out on Monday. But it wouldn’t be unusual to see others follow suit now that the door is open. NVDA stock could suffer if analysts start to advise caution.
The Bottom Line
NVDA stock certainly carries a degree of risk, but the firm also offers an enticing reward. Although Rolland reduced his price target significantly, $190 still implies a 20% upside from where shares trade today.
The biggest risk that investors buying Nvidia stock now are facing is earnings. If Nvidia can’t live up to its promises of explosive second-half results, it will be disastrous for the firm’s share price. Not only would a miss weigh on nearer-term prospects, it would also hurt management’s credibility.
If Nvidia is able to deliver when it reports in August, shares will likely climb further, eventually reaching those aforementioned 18%-plus gains by year’s end. However, a miss in the third quarter suggests that the recovery Nvidia investors have been counting on isn’t as strong as management touted. That will likely lead to a selloff in the second half of the year.
With that in mind, investors comfortable with a bit of risk might want to consider adding NVDA stock ahead of the firm’s Q3 results. The discount could become compelling especially if shares dip over the next few days due to worries AMD’s competitive threat.
As of this writing, Laura Hoy was long AMD and INTC.
