After enjoying a meteoric ascent thanks in large part to riding the coattails of the cryptocurrency sector, semiconductor firm Nvidia (NASDAQ: NVDA) – which dominates the graphics processing unit space – found itself in unusual territory: struggling for oxygen. Nevertheless, despite the see-sawing rumblings impacting NVDA stock recently, the quantitative details suggest that Nvidia is likely a contrarian Buy. Therefore, I am long-term bullish on the technology giant.
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Still, the journey hasn’t been pleasant for market participants. Since the beginning of this year, NVDA stock has shed 54% of its value. Simultaneously struggling with global supply-chain disruptions and slower consumer demand stemming from macroeconomic headwinds, Nvidia incurred a slow march forward.
Adding to the challenges, NVDA stock also suffered from competing catalysts, holding the underlying company in a tug-of-war. However, in the long run, the quantitative data suggests that fundamentally grounded speculators should start eyeballing an entry point.
Interestingly, on TipRanks, NVDA has a 7 out of 10 Smart Score rating. This indicates moderate potential for the stock to outperform the broader market.
NVDA Stock and the Initial Upside Burst
On the positive front, bad news for one tech giant turned out to be good news for NVDA stock. Specifically, Reuters reported that Meta Platforms (NASDAQ:META) recently disclosed an aggressive investment in the metaverse. Per the article, “Meta expects capital expenditures to be between $32 billion and $33 billion for 2022. Data centers, servers, and network infrastructure account for some of it, and a big slug also funds the metaverse initiative.”
Naturally, this CapEx aroused concerns among stakeholders. For instance, activist investor Brad Gerstner, Chair and CEO of Altimeter Capital Management LLC, urged Meta to cut down its workforce by 20% to control employee expenses. In addition, Gerstner recommended that the company slash its CapEx by at least $5 billion annually and bring them down to nearly $25 billion.
However, Meta goes in the opposite direction, boosting CapEx to support its increasingly risky bet on the metaverse. Again, it’s not pleasant for META stakeholders, but it’s a fundamental boon for the underlying company’s equipment suppliers. That would include Nvidia, which theoretically should bolster NVDA stock.
ON Semiconductor (NASDAQ:ON) Has a Thing or Two to Say
Although NVDA stock has been on a roll recently, gaining nearly 12% in the trailing month, it did suffer a rude disturbance on Halloween. Yesterday, ON Semiconductor disclosed its results for the third quarter. On paper, everything seemed encouraging. However, some key details left a bitter taste for the broader semiconductor industry.
In Q3, ON delivered earnings per share of $1.45, beating the consensus target of $1.31. For revenue, the company rang up $2.19 billion, representing year-over-year growth of nearly 26%. Heading into the disclosure, analysts anticipated top-line sales of $2.12 billion.
However, for the current quarter (Q4), Investor’s Business Daily noted that “Onsemi forecast adjusted earnings of $1.26 a share on sales of $2.075 billion. That’s based on the midpoint of its outlook. Wall Street had been modeling earnings of $1.25 a share on sales of $2.09 billion in the fourth quarter.”
Given the relatively lackluster guidance for ON, NVDA stock appears to have declined in sympathy.
What is the Prediction for NVDA Stock?
Turning to Wall Street, NVDA stock has a Moderate Buy consensus rating based on 23 Buys, nine Holds, and zero Sell ratings. The average NVDA price target is $195.52, implying 44.4% upside potential.
Quantitative Data Offers a Lifeline for NVDA Stock
While there are countless questions regarding NVDA stock, it’s also possible that the market discounted shares beyond justification. Certainly, the quantitative fundamentals suggest that speculators should keep close tabs on Nvidia.
Primarily, the company remains a powerhouse regarding key income statement-related performance metrics. For one thing, Nvidia’s three-year revenue growth rate stands at 31.3%. In sharp contrast, the median for the semiconductor industry is 7.9%. Put another way, Nvidia’s sales trend ranks better than nearly 90% of its competitors.
During the aforementioned period, NVDA’s free cash flow (FCF) and book growth rates ping at 36.7% and 40.2%. Both metrics easily exceed the semiconductor sector’s average respective levels.
On the bottom line, Nvidia enjoys staggeringly positive profitability margins. Its gross, operating, and net margins are 60.45%, 31.5%, and 26%, respectively. Every one of these stats exceeds the competition by at least 87%. Investors will simply not find this much dominance at such a steep market discount.
As well, not enough credit goes to the company’s balance sheet stability. Most notably, Nvidia’s Altman Z-Score of 12.8 reflects extremely low bankruptcy risk. Stated differently, speculators can take a shot on NVDA stock and still sleep easily at night.
Ultimately, then, contrarians must be willing to set aside the near-term noise impacting Nvidia. While certain details present challenges, this discount may be too compelling to ignore.
