Nvidia (NASDAQ:NVDA) has taken a hit along with most other stocks recently despite the fact that it hasn’t reported any negative news directly related to the company. While it’s possible recent negativity surrounding Advanced Micro Devices (NASDAQ:AMD) may have played a role, Nvidia stock’s near-14% weekly drop right before its Aug. 15 earnings report may be a promising entry point for investors.
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Nvidia enjoyed an uptrend that started in June when shares traded at around $130. At the time, analysts started to speculate that the graphics chip giant would benefit from a second-half recovery in demand. Stronger gaming sales and a GPU product refresh may spur chip demand. On the enterprise front, a reacceleration in hyperscaler spending would give Nvidia stock a positive lift.
But in recent days, the U.S. threat of new tariffs on China put an end to that hope. If the U.S. adds a 10% tariff on the remaining Chinese goods not taxed on Sept. 1, international trade will weaken considerably.
Companies like AMD, Nvidia, Micron Technology (NASDAQ:MU) and Qualcomm (NASDAQ:QCOM) all hoped for a recovery. This is based on easing trade tensions. But with tensions with China on the rise, chip demand could weaken once again.
Is NVDA Stock a Buy Ahead of Earnings?
NVDA Ahead of AMD in GPU Market
When we look ahead at what’s in store for NVDA stock, there are few positive things to consider. First, NVDA will likely overcome its competition from AMD in the GPU market soon.
This is true as AMD’s release of Radeon 7 for the professional graphics markets and Navi 7nm for the consumer market after that will likely fail to take Nvidia’s market share. When looking at this point, consider that Nvidia’s RTX Super GPU cards offer better performance relative to price and although AMD’s Navi cards cost less, their performance offering is not as great as hoped.
Growth Prospects
Samsung’s warning that memory and smartphone sales would weaken does not bode well for chip stocks like Nvidia stock.
Yet Nvidia is expanding its market beyond desktop computers and mobile solutions. It is planning its growth around supplying chips to the automotive sector. NVDA believes there are two aspects to AI, which leads it directly to the automotive industry.
The first phase is based on the data center. In this segment, innumerable amounts of data feed into such systems. People need to then train and iterate deep neural networks to support autonomous driving systems. Healthcare, energy exploration and financial industries require similar systems, too.
Once the models are trained, sensor data is analyzed by those systems. Cameras, liDAR, and radars are examples of sensors that the deep neural networks analyze. AI on Nvidia’s Drive platform process all that sensor data in autonomous driving systems. As such, NVDA has a tremendous opportunity in the datacenter and automotive space as customers adopt its GPUs. And as they train their deep neuro networks running NVDA’s Drive software, its revenue from the automotive sector will grow.
Nvidia’s management has touted its growth potential in the automotive space for quite some time. And while the industry in general has made many promises and projections about self-driving cars, such projections are slipping further into the future.
With delays now expected, investors banking on NVDA’s prospects in this space need to buy and hold Nvidia stock for the longer term.
On the balance sheet, look for Nvidia to allocate more of its research and development spend in the quarters ahead. It will use these resources to build more support for its AI. The software will have more layers, too, which Nvidia’s hardware may handle.
Valuation
Twenty-seven analysts covering NVDA stock have an average price target of $187.43 (per Tipranks). At a recent price of $150.79, Nvidia has a potential upside of 24%.
But with chip stocks out of favor now that trade tensions between the U.S. and China are escalating, Nvidia stock might underperform. Still, the company continues to carve out a moat in the automotive sector. As its computational powers advance and more car manufacturers pick Nvidia Drive, the revenue will grow steadily in the years ahead.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.