The Nvidia (NASDAQ:NVDA) juggernaut has come to a grinding halt. After several years of outsized growth accompanied by huge stock market gains, the perennial success story has been unable to fend off negative developments. Its Gaming segment has lost momentum while its formerly fast-growing Data Center business has also been showing signs of exhaustion. The result: a stock which has shed 51% on a year-to-date basis.
The issues – and particularly those relating to Gaming – inform Stifel’s Ruben Roy’s thesis for Nvidia.
“We are bullish on the companys longer-term opportunities across its target end market segments, but the lack of visibility into the timing and magnitude of revenue re-acceleration, particularly relative to NVDAs Gaming segment, is likely to limit share price upside, in our view,” the analyst explained.
The Gaming segment’s revenue decline has been sharper than expected and while Roy thinks the October quarter “could prove to be a bottom,” ahead of the anticipated Lovelace GPU architecture launch (expected later this year), “visibility” regarding the prospect of a rebound is likely to remain “limited.” The problem is that data center revenue growth also slowed in Q2 and looks to “remain lackluster” in Q3.
That said, the current headwinds – decelerating infrastructure investment in China, supply chain related issues – will most probably turn out to be “temporary,” and in fact, Roy sees a very bright future for the chip giant. Over the near-to-medium term, high-performance computing, hyperscale and cloud data center, and enterprise and edge computing should all provide opportunities. “Longer term,” Roy added, “we believe that NVDA will emerge as a leading processor supplier into the automotive end market.”
Overall, Roy thinks Nvidia is well-positioned to claim a big chunk of a TAM that by the end of 2025 could exceed $100 billion while that could expand to almost $1 trillion eventually.
However, the business’s reliance on the gaming market and to a degree, the crypto mining markets, has created “near-term risk” to estimates.
“Consumer demand for gaming GPUs has declined and the crypto market remains sluggish,” Roy summed up. “While NVDA recently reset its Gaming segment outlook, expectations could still be too high if demand weakness persists.”
Accordingly, the 5-star analyst initiated coverage of NVDA stock with a Hold rating, backed by a $165 price target. The analyst might be staying on the fence here, but that figure could still generate 12-month returns of ~15%. (To watch Roy’s track record, click here)
8 other analysts join Roy on the sidelines, and with an additional 24 Buys, the stock claims a Moderate Buy consensus rating. The forecast calls for one-year gains of 45%, considering the average target currently stands at $208.69. (See Nvidia stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.