Should you buy the Dip in NVIDIA?

Chipmaker NVIDIA Corporation (NVDA) has caught the attention of retail investors following its impressive third quarter earnings report. But despite its promising long-term growth prospects, the stock price has fallen slightly over the past five days due to high market volatility. So, is it a good time to invest in NVDA? Read on to find out.

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NVIDIA Corporation (NVDA) in Santa Clara, Calif., Is a visual and artificial computing company and semiconductor manufacturer. It is the ninth largest semiconductor maker in the world, with a market cap of $ 752.53 billion.

The company has capitalized on the current semiconductor shortage over the past year, as evidenced by its impressive financial results and profit margins. Its 12-month revenue and EPS increased 64.3% and 52.7% year-on-year, respectively. And for its fiscal third quarter 2022, ending October 31, 2021, NVDA’s revenue grew 50% year-over-year to a record $ 7.10 billion. Its non-GAAP operating profit was $ 3.39 billion, up 70% from the same period last year, and its non-GAAP net profit improved by 62% compared to the quarter of the previous year to $ 2.97 billion. Its non-GAAP EPS was up 60% from last year’s value to $ 1.17, beating Street’s estimate by 5.4%.

NVDA has become a signature of reopening commerce, gaining momentum over the past year as the global economy gradually reopened following lockdowns due to the pandemic and restrictions on social distancing. The stock has gained 132.8% in progress in the past year and 73.3% in the past six months. However, NVDA is down 1.6% in the past five days due to increasing market volatility and the general market downturn.

Click here to view our Semiconductor Industry Report for 2021

Here is what could shape NVDA’s performance in the short term:

Growing Popularity Among Meme Investors

NVDA became popular among memes investors after the impressive release of its third quarter results. As a leading player in the semiconductor and tech industry, memes traders are betting on the title to become a top tech giant in the near term. It is frequently mentioned on the popular Reddit forum r / wallstreetbets. NVDA shares have gained 6.8% since releasing its third quarter results on Nov. 17 to close yesterday’s trading session at $ 301.98.

Solid growth prospects

Analysts expect NVDA’s revenue to grow 48.2% in the current quarter, 60% in the current year, and 18.9% next year. Consensus EPS estimates point to a 58.4% improvement in the current quarter, a 73.6% increase for the current year, and a 19.8% increase next year. In addition, Rue expects NVDA’s EPS to increase at a CAGR of 39.4% over the next five years.

Stretched evaluation

In terms of a non-GAAP futures P / E, NVDA is currently trading at 69.69x, 186.7% higher than the industry average 24.30x. The stock’s non-GAAP forward PEG multiple of 2.87 is 74.2% above the industry average of 1.65.

Additionally, NVDA’s forward price-to-sales and price-to-cash flow ratios of 28.31 and 70.40, respectively, are significantly higher than industry averages of 4.12 and 22.89.

Consensus rating and price target indicate upside potential

Of the 26 Wall Street analysts who rated NVDA, 24 rated it Buy while two rated it Hold. The 12-month median price target of $ 360.17 indicates upside potential of 19.3% from Friday’s closing price of $ 301.98. Price targets range from a low of $ 285.00 to a high of $ 400.00.

POWR ratings reflect uncertainty

NVDA has an overall C rating, which equates to Neutral in our proprietary POWR rating system. POWR scores are calculated taking into account 118 separate factors, each factor being weighted to an optimal degree.

NVDA has an A rating for sentiment and a D for stability and value. The company’s impressive growth prospects and favorable analyst estimates are in line with its Sentiment rating. However, the stock’s 1.37 beta and above industry valuation metrics justify the stability and value ratings.

Of the 100 stocks in the semiconductor and wireless chip industry rated A, NVDA is ranked 66th.

In total, we score NVDA on eight distinct levels. We also rated NVDA for growth, momentum and quality. See all NVDA reviews here.

Final result

As one of the world’s largest chipmakers, NVDA’s long-term prospects look bright. However, the title is extremely overrated compared to its peers, which is concerning. While the larger markets are recovering because the omicron variant doesn’t look as disruptive as previously thought, the markets are still very volatile. This is evident in the 16.1% gains in the CBOE Volatility Index over the past month. Against this backdrop, we believe investors should wait until NVDA’s valuations improve before investing in the stock.

How does NVIDIA Corporation (NVDA) compare to its peers?

Although NVDA has a C rating in our proprietary rating system, one can consider looking at its industry peers, Broadcom Inc. (AVGO), Semtech Corporation (SMTC) and inTest Corporation (INTT), which have an A (Strong Buy). ) Evaluation.

Note that AVGO is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

Click here to view our Semiconductor Industry Report for 2021


NVDA shares were trading at $ 295.45 per share on Monday morning, down $ 6.53 (-2.16%). Year-to-date NVDA has gained 126.47%, compared to 26.39% for the benchmark S&P 500 during the same period.


About the Author: Aditi Ganguly

Aditi is a seasoned content developer and financial writer who is passionate about helping investors understand the dos and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach to stock analysis.

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