As has been the case with so many semiconductor stocks in the second quarter, NVIDIA (NASDAQ:NVDA) has been bludgeoned. Nvidia stock is down 14.50% in the current quarter, a slide that has extended its woes to a 12-month loss of 42.14%,
Nvidia shares are more than 48% below the 52-week high. Last October, Nvidia spent some time trading above $290. Last Friday, the shares closed at $151.76. As with its semiconductor brethren, Nvidia has been ensnared in the trade war. The U.S. has recently “blacklisted” a slew of Chinese companies, many of which were big buyers of semiconductors made by American companies, including Nvidia.
“The U.S. government is seeking to curtail China’s development of exascale supercomputers by prohibiting five major high-performance computing developers in that country from purchasing U.S. technologies, including components reportedly made by Intel (NASDAQ: INTC), AMD (NASDAQ:AMD) and Nvidia,” reports CRN.
This is a movie investors have seen plenty of this year: a U.S.-based semiconductor stock being decked by trade spat between the world’s two largest economies.
“While coverage surrounding the U.S. government’s Huawei ban has focused primarily on how the Chinese tech giant will be affected, it’s worth remembering that the company’s U.S. suppliers also stand to lose a great deal of money in the fallout of President Trump’s executive order,” reported TechRadar.
A Closer Look at Nvidia Stock
As has been noted, some thawing of the US/China trade hostilities could be imminent if the two sides can at least be civil at the upcoming G-20 summit. That could provide a lift to the broader semiconductor group, including Nvidia, but there are other factors to consider with Nvidia.
Yes, the company withdrew 2019 guidance, creating an element of uncertainty around the shares, something Nvidia’s recent price action reflects. Still, this is one of the names in the semiconductor space with the most reliable growth. The recent share price depression could represent a buying opportunity for prescient investors.
“While acknowledging near-term uncertainty, we maintain our steadfast belief in NVIDIA’s technology leadership, derived from both its accelerated computing hardware strength and broad/mature software ecosystems,” said Cowen analyst Matthew Ramsay in a recent note. “We believe this footprint is tied to the most attractive secular growth verticals in the industry across gaming, datacenter and automotive, and thus will allow NVIDIA to materially outgrow its peers.”
Nvidia stock is also backed by some impressive fundamental factors. For example, the company has a return on assets and return on equity of 24.40% and 35.30%, respectively. Rival AMD’s ROA and ROE are 6.10% and 21.50%.
Importantly, Nvidia products lever the company to some of the fastest-growing, hottest end markets for semiconductors.
“We believe NVDA’s IP (chips and software) address some of the most attractive end markets in all of tech (Gaming, server acceleration, AI training & inference, and autonomous driving),” said SunTrust analyst William Stein in a recent note.
Bottom Line on Nvidia Stock
Nvidia stock would need to almost double from current levels to return to its 52-week high. That might be asking a lot over the near- to medium-term, but there are reasons to believe Nvidia currently offers investors a lot of value in growth stock form.
Those reasons include free cash flow of $3.14 billion, a trait of a quality company. Plus, Nvidia trades more than 20% below the average analyst price target on the shares.
Due to its “leading position in core DC AI, gaming and autonomous growth verticals,” Nvidia is Oppenheimer’s top pick among large-cap growth stocks.
Todd Shriber does not own any of the aforementioned securities.
