Nvidia stock wobbles as investors digest short-term challenges amid year-long run up

“This is going to be one of our most successful ramps ever, and it gives our install base of some 200 million-plus GeForce gamers the best reason to upgrade in over a decade,” said Jensen Huang, Nvidia founder and chief executive, told analysts.

To that end, Nvidia forecast fourth-quarter revenue of $4.7 billion to $4.9 billion. Analysts, who had forecast revenue of $4.4 billion on average before the report, hiked their estimates to an average $4.74 billion.

Analysts, however, noted that this year’s fourth-quarter contains 14 weeks rather than 13 for Nvidia, taking some of the steam out of the forecast. Also, of concern was the loss of Mellanox networking products revenue due to the U.S. ban of selling chips to Chinese telecom-equipment company Huawei Technologies Co. and chronic supply shortages the company is facing.

“We would appreciate more agile supply chains,” Huang said on Wednesday’s call. “But the world is constrained at the moment and so we just have to make the best of it.”

Bernstein analyst Stacy Rasgon, who has an outperform rating and raised his price target to $575 from $545, addressed the dip in shares as being a matter of optics given that results had “little actual issues to pick on” but the stock had a year-to-date run up of 128% before the earnings report.

“The company continues to overdeliver on both key segments even in the midst of a pandemic, continued supply constraints, and potential datacenter digestion environment,” Rasgon said.

Raymond James analyst Chris Caso, who has an outperform rating and hiked his price target to $600 from $550, also noted the 14-week fourth-quarter took some of the steam out of the outlook, but that was of little consequence.

“Most important to us is that NVDA continues to post revenue at a 50% Y/Y growth rate, they still can’t get enough product to satisfy all demand, and the reception of these new products – from gaming to training to inference – appears to be extremely strong,” Caso said. “While the stock is not inexpensive at 50x our revised FY22 EPS, there’s also no other company in our space growing at 50% .”

Susquehanna Financial analyst Christopher Rolland, who has a positive rating on the stock and a $610 price target, said in a note that results “would have been even better if not for the shortages.”

“In short, this was another solid quarter for Nvidia. However, any stock that trades at 17x revenue generally needs to put up a flawless quarter and one without niggles,” Rolland said. “While Huawei and the 14th week are small negatives, we urge investors to look through these temporary issues and towards a long-term growth rate 3x the overall semiconductor market. “

Evercore ISI analyst C.J. Muse, who has a $600 price target, expects Mellanox revenue at Nvidia to take a hit of about $110 million because of the Huawei ban but did not see that as a reason to change his long-term view.

“We continue to remain very positive on not only NVDA’s exposure to secular growth opportunities across verticals, but also its position as the enabler of key megatrends in Semiconductors (AI, AD, Gaming, etc.) – specifically NVDA’s platform approach which we believe remains underappreciated by the market,” Muse said.

Of the 39 analysts surveyed by FactSet who cover Nvidia, 31 have the equivalent of a buy rating, five have the equivalent of hold ratings and three have the equivalent of sell. Of those, 19 hiked their price targets on the stock to an average $579.90, up from the $569.76 average prior to the earnings report, according to FactSet data.

Nvidia, which had been down about 1.5% in early Thursday trade, closed up 0.1% at $537.61. For the year, the stock is up 128%. In comparison, the PHLX Semiconductor Index
SOX,

has gained 39%, the S&P 500 index
SPX,

has risen 11%, and the Nasdaq Composite Index
COMP,

has advanced 33% year to date.