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Nvidia Can’t Catch a Break. Why Its Stock Is Still a Buy.

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Nvidia stock was falling Thursday despite a “beat and raise” earnings result.

Dreamstime


Nvidia

can’t seem to catch a break.

The chip maker delivered what Wall Street was expecting, and more, when it reported fourth-quarter earnings late Wednesday, and yet the stock is falling.

 


Nvidia

(ticker: NVDA) shares were more than 2% lower in U.S. premarket trading Thursday, having slipped 12% so far this year amid a wider selloff in the technology sector.

Nvidia reported profit growth of 69%, with adjusted earnings per share (EPS) of $1.32 on sales of $7.64 billion, trouncing Wall Street’s estimates of EPS of $1.23 on revenue of $7.42 billion.

To top it off, the group—a dominant force in the chip space with a focus on gaming and data centers complemented by a growing business centered on the metaverse—delivered impressive forward guidance. For the current quarter covering the February to April period, Nvidia expects sales of around $8.1 billion, far above Wall Street’s forecast revenue of $7.3 billion.

A “beat and raise” result like this is typically a recipe for a company’s share price to surge post-earnings, but that hasn’t been the case with Nvidia. The stock’s premarket decline Thursday outpaces the swing lower in futures tracking the tech-heavy

Nasdaq
index.

Perhaps Nvidia didn’t beat enough and raise by enough; after all, expectations for just that were very high going into Wednesday.

Analyst Christopher Rolland of trading group Susquehanna said the share price reaction “has us scratching our heads.”

“We are confused,” Rolland added, but noted that the move lower in the shares was “perhaps driven by less [gross margin] expansion and elevated [operating expenditures.” 

He noted that Nvidia stock has “significantly underperformed” the

PHLX Semiconductor
index (SOX) since its last result, which he had thought presented a low bar to meet going into earnings.

But investors should fear not. There are a lot of reasons to be bullish on Nvidia.

To start, the stock is overwhelmingly rated at Buy by dozens of brokers surveyed by FactSet. Analysts have an average target price on the stock of $347.63, implying almost 35% upside from where the shares stood in the Thursday premarket.

Rolland at Susquehanna is among the more bullish; the analyst reiterated his Positive rating on the stock with a target price of $360.

Nvidia’s earnings build the case for the company among analysts led by Vijay Rakesh at Japanese investment bank


Mizuho
.
Rakesh’s team reiterated their Buy rating on Nvidia stock and raised their target price to $345 from $335.

“We believe Nvidia continues to drive data center and [artificial intelligence] leadership, positioning it well into 2022,” Rakesh said. 

Bullishness was shared by analysts led by Harsh Kumar at investment bank


Piper Sandler
,
which reiterated its Overweight rating on Nvidia stock with a target price of $350.

“Nvidia provided flawless execution, nicely beat January quarter expectations, and provided strong April quarter guidance,” Kumar’s team said. “Outside of data center and gaming, there are multiple, large, disruptive catalysts in the company’s arsenal that can ignite growth and gross margins in the future.”

Software is chief among these, with artificial intelligence, metaverse, and automotive platforms likely to provide “the next leg of revenue growth and gross margin expansion,” Kumar said.

Boosted by Nvidia’s rosy outlook, Piper Sandler also raised its estimates for revenue in the current fiscal year to $34.9 billion from $31.8 billion.

Write to Jack Denton at jack.denton@dowjones.com

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