Stock Analysis & Ideas

Nvidia Stock (NASDAQ: NVDA): Here’s Why We’re Bearish

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Nvidia’s latest earnings report was a shocker, pointing to more pain ahead for investors. However, its stock price is still pricey considering the market headwinds. Hence, it’s best to let the stock bottom out before wagering on it.

Tech giant Nvidia (NASDAQ: NVDA) had been cruising up until the first quarter of this year. However, its second quarter has investors fretting over the future, with a considerable drop in the top and bottom-line growth. The company is facing considerable short-term headwinds, which are evidenced by the incredibly weak forecast for the third quarter. Meanwhile, its stock still trades near its 5-year averages, which is perhaps why it’s best to wait for a pull-back before investing in it. Hence, we are bearish on Nvidia.

Its second-quarter gross profit significantly declined from $5.4 billion in Q1 to $2.9 billion in Q2. Moreover, Nvidia’s earnings per share dropped considerably from $1.36 to $0.51 sequentially during the second quarter.

Additionally, the firm is facing a decline in the demand for graphics processing units (GPU) owing to the fall of crypto mining. In addition, Nvidia is also going through a slump in its gaming market.

There are still plenty of reasons to be upbeat about Nvidia stock’s future. For one, the company is making big moves into the artificial intelligence (AI) market as it unveiled the most advanced GPU 40 series at the latest RTC conference. Similarly, the shift toward cloud gaming will likely be a long-term catalyst for the company. With its disruptive digital gaming technologies, Nvidia has also proven to be quite resilient in the past, bouncing back from tough times stronger than ever.

Valuable Insights from Nvidia’s RTC Conference

At Nvidia’s latest RTC conference (the GeForce Technology Conference), the company unveiled the first lineup in the RTX 40-series of GPUs.

Catering to the immersive gaming requirements of today is a massive challenge for chip-makers such as Nvidia. However, the RTX 40 is perhaps one of the more robust upgrades in years. It checks off all the boxes for gamers, and its developers brag that it could be “the fastest GPU in existence.”

Nvidia explains that gaming performance could double for the latest titles. Some analysts predict that the RTX 40-series will help Nvidia regain lost market share from rival AMD. Though it’s still early to comment at this point, Nvidia’s GeForce RTX 40-series Graphics Cards will likely boost the company’s top and bottom lines by an incredible margin as we advance.  

How Will Ethereum’s Merge Impact Nvidia?

NVDA stock took a hit this month when the company issued a revenue warning, with some attributing the drop to Ethereum’s planned “Merge” – a crypto mining shift from proof-of-work to proof-of-stake. Analysts estimate this development could result in a $2 billion to $3 billion loss for the business.

Naturally, the millions of graphic cards used for mining purposes will no longer be relevant for a “proof-of-stake” approach, so they will likely find their way into the used cards market. Hence, it is possible that Nvidia will lose out on the entirety of its crypto revenue soon, which would have a substantial impact on its top and bottom-line results.

Nvidia Stock’s Omniverse Opportunity

Nvidia will have a key role in shaping the metaverse. The Omniverse is redefining 3D art, AI simulations, and digital twin simulations for industrial processes. Moreover, a new art segment focusing on avatars and 3D virtual designs is under development. The company is also developing a new Universal Scene Description (USD) feature, enabling professionals to simulate highly customized 3D pipelines and build large-scale virtual worlds.

Furthermore, it announced its first infrastructure-as-a-service offering called the Nvidia Omniverse Cloud. It provides a wide variety of tools for users to design, publish, and share metaverse applications.

The service could potentially add a whole new revenue stream for Nvidia, which is likely to grow at a healthy pace that’s in line with the expansion of the metaverse concept. Experts suggest that the metaverse could be a multi-billion dollar industry down the road. If Nvidia can only grab a fraction of the market, it could gain billions in revenues and further strengthen its bull case.

What is a Good Price for NVDA Stock?

Turning to Wall Street, NVDA stock maintains a Moderate Buy consensus rating. Out of 32 total analyst ratings, 23 Buys, nine Holds, and zero Sells were assigned over the past three months. The average NVDA price target is $205.74, implying 66.8% upside potential. Analyst price targets range from a low of $133 per share to a high of $320 per share.

Takeaway: Wait for NVDA Stock to Stabilize

The current market downturn has weighed down NVDA stock and its peers. Indeed, its most recent results have investors fretting over the future. However, NVDA remains a strong company with its tentacles in several profitable verticals. Nonetheless, given the current market situation and its business challenges, it’s best to wait for the stock to stabilize before making any decisions.


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