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NVIDIA’s share price decline has been inconsistent with the chipmaker’s robust sales

NVIDIA’s (NASDAQ: ) spectacular fall from grace suggests that investors may already be pricing in a global recession. This year, the Santa Clara, California-based company has lost about 48% of its market value.

NVIDIA Weekly Chart

Among technology companies, chipmakers are the most vulnerable to economic cycles because they depend on demand from industries such as cars, computers and factory equipment.

The sector has seen an increase of more than 20% in monthly sales since almost a year of the post-Covid global resumption.

However, when the US Federal Reserve embarks on one of the most aggressive monetary tightenings in the country’s history, those demand-supply dynamics can quickly reverse—especially if the economy plunges into recession.

NVIDIA’s broad-based marketing has another aspect. Last month, it said it expects sanctions in Russia and ongoing COVID lockdowns in China to lead to a $500 million hit in the current quarter.

But despite this widely expected decline, some analysts are still not convinced that market leaders like NVIDIA will be hurt badly enough to show a drop in their stock prices.

Very resilient

Bank of America, in a note this month, named NVIDIA a top pick after its valuation became increasingly strong. According to the note, the company will serve highly “resilient” industries, including cloud computing and artificial intelligence, industrial, electric vehicle and driverless technology sectors.

It adds:

“In the past, a single end-market, say PCs or smartphones, drove the semis. Now there are multiple end-markets served by a unified chip vendor, delivering proprietary products and generating solid FCF margins.

[…]Stronger pricing and the use of more flexible hybrid manufacturing/outsourcing foundries should help reduce Semis’ gross margin/FCF volatility in the next inevitable downturn.

Other Wall Street analysts also share these bullish views as NVDA stock sees value after the decline.

In a survey of 46 analysts conducted Investing.com34 gave the stock a “Buy” rating with a consensus 12-month average price target of $252.10, indicating upside potential of 66%.

NVIDIA Consensus Estimates

NVIDIA Consensus Estimates


Furthermore, NVIDIA’s latest showed that the surge in semiconductor demand remains in place during the pandemic. Revenue rose 46% in the company’s first quarter ended April 30, helped by 83% growth in the data-center unit.

The cloud provider relies heavily on NVIDIA’s processors to handle artificial intelligence, clear evidence that CEO Jensen Huang is succeeding in transforming the company from a niche graphics-card maker to a chipmaking powerhouse.

Gaming revenue rose 31% last quarter, while professional visualization sales increased 67%. The weak spot was vehicle revenue, which fell by 10%. Gross margins, the percentage of sales remaining after deducting manufacturing costs, are approximately 66%.

The bottom line

NVIDIA may not escape the impact of a possible economic downturn but its diverse product offerings and lead in the data-center sector suggest that its sales will not be as badly hurt as its current valuation suggests.


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