Bank of America analyst Vivek Arya said in a research report that Nvidia (NVDA) shares have been sold off recently due to concerns about slowing growth, but the sell-off appears to be overdone.
Arya said Nvidia shares fell sharply last week, likely due to concerns about its gaming business, which has also sent the stock down 26% so far this year. Arya speculates that market concerns may stem from the impact of the Russian-Ukrainian conflict that may dampen demand for European customers, Chinese customers may be affected by the epidemic blockade measures, and cryptocurrency-related customers may be affected by the falling price of Ethereum and the POS consensus mechanism (representing Ethereum Blockchain security will transition from expensive power-hungry mining hardware to relying on staking tokens) resulting in reduced demand for graphics cards.
“While we point to these headwinds, we believe investors may be underestimating other supporting trends, including: strength in data centers, the Pro Viz platform and the automotive business in the second half,” the analyst added, based on Hopper-structured gaming products and inventory replenishment will also boost the stock.
Arya pointed out that if Nvidia's gaming business were to decline, it would only have a 7%-9% impact on earnings per share. The analyst lays out a scenario for this, expecting Nvidia’s earnings per share to decline by 5% sequentially in the current quarter and 10% in the next quarter. “It's worth noting that Nvidia's gaming business sales grow by an average of 25% every two years (a CAGR of 8% to 45%), while the above scenario assumes a two-year CAGR of only 25%,” Arya wrote. 6%, well below the historical range.”
In the end, Arya concluded: “Considering that Nvidia is increasing sales in the high barrier computing market at a CAGR of 20-25% (3 times the growth of the semiconductor industry) in the high barrier computing market, while maintaining more than 45% Industry-leading EBIT and we continue to view Nvidia as one of the most important growth companies in the semiconductor space, even in technology.” Currently, the analyst has a “buy” rating on Nvidia with a price target of 375 Dollar.
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