Kimihiko commented on a stock · Nov 24, 2024 01:33

Bulls vs. Bears: Can Nvidia maintain its premium rating?

Despite falling short of financial estimates in the third quarter this week, Nvidia (NASDAQ: NVDA), a leading semiconductor company, continues to trade at a significant premium.

Even though surpassing the $3.5 billion revenue guidance for the fourth quarter, Nvidia, the world's largest listed company, saw profits decline amidst high expectations from some bullish analysts.

Led by Jensen Huang, the company is trading at a forward earnings multiple of 48.0 compared to approximately 25.0 for the sector median. Seeking Alpha analysts have expressed diverse views on the future trajectory of the stock.

Bulls

"On paper, considering most standard indicators, Nvidia may seem overvalued," Cash Flow Venue wrote in "Nvidia: Is Beating Expectations Not Enough Anymore?". "However, as I usually say, remember that we are talking about NVDA, an undisputed leader in a highly attractive and dynamically growing sector."

"Currently, Nvidia is valued at a P/E ratio of 35x for the fiscal year 2026," added Nvidia's Asian investors: "It is significantly undervalued. However, with consistent EPS growth, Nvidia could potentially be valued over $300 per share by the end of the decade."

"Blackwell believes Nvidia is well positioned to drive future growth. Nvidia will continue to benefit from the rapid expansion of the datacenter market," said Nvidia H200's Hunter Wolf Research in the fastest product ramp-up in history. "Discounting all future FCFE to FY26, my estimate puts the 1-year target price at $184 per share."

"The post-third-quarter decline in Nvidia's stock is due to market concerns over the sustainability of growth and conservative fourth-quarter guidance, not reflecting Nvidia's long-term outlook," stated DeVas Research in 'Nvidia Q3 and Beyond: 2 Biggest Market Fears Addressed - Reiterate Strong Buy.' 'Despite being overvalued, Nvidia's market potential is immense and supported by the company's strategic positioning in rapidly growing AI investments and the AI ecosystem.'

Michael McGrath added in 'Nvidia: The Most Profitable Company ((Ever))?' that "There is a valid investment rationale regarding Nvidia Corporation's valuation and P/E ratio." "And since profitability is the most important measure of success, owning Nvidia's stock makes sense."

Bears

"Geopolitical risks under the Donald Trump administration may not directly impact Nvidia's overall growth, but could significantly influence stock sentiment that the market has not yet discounted," said Nvidia's Johnny Zhang. Blackwell Ramp expects a hit to gross profit margin, forecasting in the low 70s. "NVIDIA is trading at 37x EV/sales TTM, approaching record highs, and with revenue growth and margins normalizing compared to last year, it is creating higher downside risks."

"Despite impressive year-over-year and QoQ growth, Nvidia's margins are stagnating, indicating a slowdown in profit growth and potential future decline," said The Retirement Forum, SA Investment Group Leader on Nvidia's growth deceleration, set at more than twice its fair value. "Nvidia's current P/E ratio of 50 times is unsustainable without substantial long-term profit growth, and the stock is significantly overvalued."

"Despite solid results, concerns linger over Hopper and Blackwell GPU supply constraints, as well as ongoing shrinkage in gross profit margins," writes Ahan Vashi, SA Investment Group Leader at Nvidia. The Triple Play does not justify the $3.6 trillion valuation (Rating Downgrade). "I still see Nvidia's mid to long-term demand [growth and margins] as questionable."

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