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Here’s Why Nvidia’s Fortunes Are Changing at Such a Fast Pace
Stock Analysis & Ideas

Here’s Why Nvidia’s Fortunes Are Changing at Such a Fast Pace

Story Highlights

Rising rates, falling cryptocurrencies, and tightening budgets by customers mean NVIDIA may have an uphill task ahead of itself. The Q2 guidance only reinforces the fears that have led to a 52% share price slump so far in 2022.

The global markets are facing a volley of problems with ever-growing inflation, impending fears of recession, COVID-19 lockdowns in China, and the Ukraine-Russia conflict, which are spurring a major slowdown in overall consumer demand, especially in the electronic consumer market, causing a slump in sales of PCs, TVs, and smartphones.

As a result, technology companies across the globe, like Nvidia (NVDA), face concerns about order cuts for their GPU processors and other products. Shares have already lost half of their market capitalization over the past year.

Based in California, NVIDIA Corp. is a multinational technology company that designs and manufactures computer graphics processors, chipsets, and related multimedia software.

Lower Consumer Demand

Heightening the already worrisome fears of recession and reduced consumer demand, Micron Technology (MU) provided lackluster guidance for its fiscal fourth quarter at the end of last week.

This reaffirms the growing concern that semiconductor companies may soon see a cut in their orders for the chips due to a dip in demand for PCs and smartphones.

The change of fortune is in sharp contrast to peak pandemic times when industrial customers, as well as gamers and crypto miners, had to face waiting lists and lines to get their hands on the prized chips.

Now, NVIDIA and its peers are faced with falling demand while store shelves are brimming with supplies. Moreover, a sharp slump in cryptocurrencies means less and less demand for their mining.

A similar scenario may play out in the auto segment as well, as customers tighten budgets and vehicle sales moderate. Tesla (TSLA) has already announced actions to streamline its workforce, which could be a harbinger of things to come in this space.

While NVIDIA expects a $500 million impact on its second-quarter top line, the pain may persist in future periods as well. If crypto markets do not bottom out sooner, the impact on sales of mining equipment might get entrenched.

For Q2, NVIDIA already expects declines in gaming to offset gains from the data center as well as auto segments.

Wall Street’s Take

Last week, BofA Securities analyst Vivek Arya decreased the price target on NVIDIA to $220 (51.48% upside potential) from $270 and reiterated a Buy rating.

Consensus among analysts is a Strong Buy based on 26 Buys and four Holds. The average Nvidia analyst price target of $262.41 implies an 80.69% upside potential to current levels.

Insider Trading

According to the Tipranks Insider Trading Tool, insiders at NVIDIA are Negative about the stock’s near-term prospects and have sold stock worth $87.9 million over the last three months.

The most recent major Sell transaction was by Jen Hsun Huang, the CEO, President, and Director of the company, who sold NVIDIA shares worth $2.62 million last month.

Conclusion

While the near 52% price drop might be painful for NVIDIA investors, the stock is still up nearly 300% from its January 2019 levels.

As the pandemic era demand boom fades and new realities driven by the Fed’s actions and crypto winter set in, investors may have to swallow more pain in the coming periods.

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