Most of the time, analysts’ consensus price targets and average buy/sell ratings more or less jive with the market’s rhetoric and stocks’ most recent prices. Nvidia (NASDAQ:NVDA) stock, however, has made its way off the proverbial roadmap altogether.
That is, with NVDA currently priced around $143 at this time, it’s miles away from analysts’ consensus target near $183.
As a result, investors are wondering if there’s something the market sees that analysts are missing.
There’s isn’t.
That’s of little solace to the owners of NVDA stock who watched the shares dwindle from highs above $280 in early October to a low near $124 late last year.
It looked like NVDA was on the mend in early 2019, but once again, it has proven to be a below-average performer.
It’s noteworthy, though, that analysts haven’t exactly flinched in the midst of the setback.
Misguided Panic
While Intel (NASDAQ:INTC) is down around 5% since the end of September, Nvidia stock has tumbled a shocking 50% since then, even after this week’s rebound effort.
The weakness is superficially understandable. NVDA dished out an earnings miss in November, simultaneously warning shareholders that 2019 wasn’t going to be so hot either.
So far, the company has just barely managed to live up to those low expectations. As of the latest look, its revenue is on course to fall 5% this fiscal year.
The punishment hasn’t fit the crime, though. The decline of Nvidia stock price has radically exceeded the scope of the offense.
But that happens more than most investors realize. It’s happened to NVDA in spades, however… and it shouldn’t have.
While this year is going to be tough as the comparisons against a cryptocurrency-driven mania will make Nvidia’s number appear tepid, that’s a temporary headwind. Ditto for the impact of tariffs. Largely lost in the hysteria are next year’s projections. NVDA’s revenue is expected to improve nearly 20% in 2020, leading analysts, on average, to project that its earnings per share will jump to $7.15, versus their consensus estimate of $5.30 for this year.
Among the key drivers of that recovery are data centers. Moreover, the world has embraced cloud computing in earnest and artificial intelligence is becoming mainstream, two trends that play right into the hand Nvidia is holding.
Further, both of the latter trends are expected to continue growing for a long, long time. Research firm Gartner believes the cloud market will grow from last year’s $176 billion to $278 billion by 2021. Forrester, another research firm, thinks that figure will reach $323 billion by that year.
Self-driving cars and graphics processors are also good growth opportunities for NVDA.
Analysts have never taken their eyes off of this bigger picture.
What the Pros Say
Analysts did adjust to the development of new headwinds. As of August, their consensus target for NVDA was around $297. Since then it’s peeled back to around $183.
The spread between that target and the stock’s current price has rarely been wider.
Regardless, even against a backdrop of more bearish chatter and uncertainty, the consensus target on NVdA has stabilized. Analysts haven’t changed their minds on Nvidia stock meaningfully since February.
Even the stock’s biggest critics aren’t all that critical.
One of NVDA’s biggest detractors is BMO Capital Markets‘ Ambrish Srivastava. He’s particularly concerned about the company’s performance during the current quarter, but even his price target of $140 — the lowest of all analysts — suggests Nvidia stock price is already as low as it’s feasibly going to go. DZ Bank, Needham and Exane BNP sport the only highly pessimistic ratings on the company, but even DZ has a target price of $170.
Again, Nvidia stock is currently trading near $143.
The Bottom Line on Nvidia Stock
The $64,000 question is: Why are investors so much more bearish on NVDA than analysts?
The most plausible explanation is also the most correct one. Investors bought into the bullish hysteria, and then fueled the bearish hysteria, crushing a stock that was in the wrong place at the wrong time. It happens. When the phenomenon takes shape for all the wrong reasons though, it doesn’t remain in place for too long. Analysts have, for the most part, kept this reality in mind.
It’s a reality that doesn’t preclude more volatility. But, with Nvidia stock price back near its multi-year lows that many industry veterans can’t justify, NVDA looks quite compelling.
— James Brumley
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Source: Investor Place