NVIDIA Corporation (NVDA) in Santa Clara, Calif., is a visual and artificial intelligence computing company and semiconductor manufacturer. It is the ninth-largest semiconductor manufacturer globally, with a $752.53 billion market cap.

The company has been capitalizing on the current semiconductor shortage over the past year, as evidenced by its impressive financials and profit margins. Its trailing-12-month revenues and EPS increased 64.3% and 52.7% respectively year-over-year.  And for its fiscal 2022 third quarter, ended October 31, 2021, NVDA’s revenues increased 50% year-over-year to a record $7.10 billion. Its non-GAAP operating income came in at $3.39 billion, up 70% from the same period last year, and its non-GAAP net income improved 62% from the prior-year quarter to $2.97 billion. Its non-GAAP EPS rose 60% from the year-ago value to $1.17, beating the Street’s estimate by 5.4%.

NVDA has become a signature of reopening trade, thereby gaining momentum over the past year as the global economy gradually reopened following pandemic-driven lockdowns and social distancing restrictions. The stock gained 132.8% in price over the past year and 73.3% over the past six months. However, NVDA has declined 1.6% over the past five days amid the surging market volatility and the broader market pullback.

Click here to checkout our Semiconductor Industry Report for 2021

Here is what could shape NVDA’s performance in the near term:

Rising Popularity Among Meme Investors

NVDA has become popular among meme investors following its impressive third-quarter earnings release. As a leading player in the semiconductor and tech industry, meme traders are betting on the stock to be a premier tech giant in the near term. It is frequently mentioned on the popular Reddit forum r/wallstreetbets. Shares of NVDA have gained 6.8% in price since its third-quarter earnings release on November 17 to close yesterday’s trading session at $301.98.

Solid Growth Prospects

Analysts expect NVDA’s revenues to rise 48.2% in the current quarter, 60% in the current year, and 18.9% next year. The consensus EPS estimates indicate a 58.4% improvement in the current quarter, a 73.6% rise in the current year, and a 19.8% increase next year. In addition, the Street expects NVDA’s EPS to rise at a 39.4% CAGR over the next five years.

Stretched Valuation

In terms of forward non-GAAP P/E, NVDA is currently trading at 69.69x, which is 186.7% higher than the 24.30x industry average. The stock’s 2.87 forward non-GAAP PEG multiple  is 74.2% higher than the 1.65 industry average.

Furthermore, NVDA’s forward Price/Sales and Price/Cash Flow ratios of 28.31 and 70.40, respectively, are significantly higher than the 4.12 and 22.89 industry averages.

Consensus Rating and Price Target Indicate Potential Upside

Of the 26 Wall Street analysts that rated NVDA, 24 rated it Buy while two rated it Hold. The $360.17 median 12-month price target indicates a 19.3% potential upside from Friday’s $301.98 closing price. The price targets range from a low of $285.00 to a high of $400.00.

POWR Ratings Reflect Uncertainty

NVDA has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

NVDA has an A grade for Sentiment and a D for Stability and Value. The company’s impressive growth prospects and favorable analyst estimates are in sync with its  Sentiment grade. However, the stock’s 1.37 beta and higher-than-industry valuation metrics justify the Stability and Value grades.

Of the 100 stocks in the A-rated Semiconductor & Wireless Chip industry, NVDA is ranked #66.

In total, we rate NVDA on eight distinct levels. We have also rated NVDA for Growth, Momentum, and Quality. View all NVDA Ratings here.

Bottom Line

As one of the largest chip makers in the world, NVDA’s long-term prospects look bright. However, the stock is hugely overvalued compared to its peers, which is a cause for concern. Though the broader markets are recovering because the omicron variant appears to be not as disruptive as previously thought, the markets are still highly volatile. This is evident in the CBOE Volatility Index’s 16.1% gains over the past month. Given this backdrop, we think investors should wait for NVDA’s valuations to improve before investing in the stock.

How Does NVIDIA Corporation (NVDA) Stack Up Against its Peers?

While NVDA has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Broadcom Inc. (AVGO), Semtech Corporation (SMTC), and inTest Corporation (INTT), which have an A (Strong Buy) rating.

Note that AVGO is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

Click here to checkout our Semiconductor Industry Report for 2021

NVDA shares were trading at $295.45 per share on Monday morning, down $6.53 (-2.16%). Year-to-date, NVDA has gained 126.47%, versus a 26.39% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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