What goes up must come down. Nvidia (NASDAQ:NVDA) investors have learned that the hard way this week. The semiconductor giant’s stock has tumbled about 10% in the past five days due to concerns about President Joe Biden’s crackdown on the sale of artificial intelligence chips to China. Nvidia is a leading player in the world of AI.
Adding to the short-term pain for Nvidia? Analysts at Citi and Morgan Stanley both cut their cut price targets on the stock this week following the news about China. The two firms each previously had a price target of $630. Morgan Stanley lowered its to $600 while Citi dropped its forecast to $575. Morgan Stanley called the new White House restrictions “a significant setback.”
But are the growing economic and tech tensions between America and China just an excuse to take some Nvidia profits off the table? After all, Nvidia’s stock is still up nearly 200% this year, a much bigger gain than rivals Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC) as well as the broader Philadelphia Semiconductor Index and the Nasdaq.
The optimism about Nvidia, a company that is now worth more than $1 trillion, is warranted. Analysts expect the company’s revenue to more than double this fiscal year (which ends in January 2024) and surge another 50% in the following year. Wall Street has steadily boosted its earnings forecasts for the company over the past few months. Nvidia is now expected to post earnings gains of nearly 80% a year over the next three to five years.
Despite these amazingly strong fundamentals, the stock still trades at a reasonable valuation of about 25 times earnings estimates for Nvidia’s next fiscal year.
It’s also worth noting that even though Citi and Morgan Stanley trimmed their price targets on Nvidia, they did not cut their ratings. Citi reiterated its “buy” call on Nvidia while Morgan Stanley maintained its “outperform” recommendation on the stock.
The rest of Wall Street continues to be extremely bullish on Nvidia as well. According to TipRanks, 37 of the 38 analysts who cover the stock have it rated a “buy” and the consensus price target for Nvidia is about $645.50… more than 50% above its current price.
The Bottom Line on NVDA Stock
The bottom line? Nvidia is a diversified company whose graphic processors are used in video games, for crypto mining and numerous other applications beyond artificial intelligence. Nvidia also generates just 20% of its overall revenue from China, including Hong Kong. That’s obviously still a significant chunk of sales, but not enough to derail Nvidia’s global dominance.
Investors should find out more about the impact of the frosty U.S.-China relations on Nvidia next month when the company reports earnings for its fiscal third quarter on Nov. 21. Nvidia easily topped consensus forecasts in its previous three quarters. So, buying the stock now before results are released could be a good bet.
As of this writing, Paul R. La Monica did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
