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NVIDIA Stock: Trading Well Above Historical Valuation Multiples
Stock Analysis & Ideas

NVIDIA Stock: Trading Well Above Historical Valuation Multiples

I am neutral on NVIDIA Corporation (NVDA) as it trades well above its historical valuation multiples and its growth is likely to slow in 2022, though its price target implies significant upside, and Wall Street analysts are overwhelmingly bullish on it.

NVIDIA Corporation, also known as NVIDIA, is an American technology company specializing in manufacturing chipsets, computer graphics processors, and other software.

NVIDIA was founded in January 1993 and is headquartered in Santa Clara, California. It’s primarily known for its semiconductors and is often called a chip giant. The technology giant became public in 1999. 

Strengths

While NVIDIA has many strengths, the company’s claim to fame is the invention of the Graphics Processing Unit (GPU) that revolutionized video gaming and parallel computing.

Additionally, since it’s a major player in the chips and semiconductor market, demand for its products isn’t going anywhere. They provide the core technology in gaming, healthcare, AI, robotics, and more, making NVIDIA indispensable.

The company has firmly placed itself in the market and is a competitor to Advanced Micro Devices (AMD) and Intel (INTC). It already has deals in place with Amazon (AMZN) and NIO (NIO) since it supplies Amazon Web Services data center chips and will supply the chips for the NIO ET7 EV. Another major strength is its place in the emerging metaverse.

Recent Results

NVIDIA’s third-quarter results from 2021 show its promise as an investment option. The company broke records with total revenue of $7.1 billion, a staggering 50% increase from the previous year.

This was also 9% up from the previous quarter, showing steady and sustainable growth. Its Data Center revenue was up 55% from the previous year and reached $2.94 billion, while Gaming revenue was up 42% from the previous year and reached a high of $3.22 billion.

Valuation Metrics

NVDA stock looks very expensive right now as its enterprise value-to-EBITDA and price-to-normalized earnings ratios are well above historical averages at 49.4x and 50x, respectively.

In 2022, analysts expect the company to grow revenues by 18.2%, EBITDA by 18.4%, and normalized earnings per share by 19.6%.

Wall Street’s Take

According to Wall Street analysts, NVDA earns a Strong Buy analyst consensus based on 24 Buy ratings, two Hold ratings, and zero Sell ratings in the past three months. Additionally, the average NVDA price target of $359.17 puts the upside potential at 41.3%.

Summary and Conclusions

NVDA stock has been one of the truly great tech growth stocks in recent years, and looks like it will remain a pre-eminent player in the technology space for years to come.

It possesses leading technology in the computational, artificial intelligence, and metaverse domains, and continues to invest aggressively in research and development in these segments in order to drive further competitive advantage, long-term growth, and profitability for the company.

Despite the stock’s recent surge, Wall Street analysts remain overwhelmingly bullish on the stock and the average price target implies substantial upside potential for the stock over the next year.

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