After by nearly 30% in the last week, investors who watched this graphics chip supplier in the last few years will ask if the stock is a buy at $145. Valuations are far more compelling at 19.9 times earnings, albeit in-line with the company’s lowered growth forecasts.
That Nvidia (NASDAQ: NVDA) could grow a steady 12% in earnings in the next five years, or at a PEG of 1.7 times has little meaning. Emotions drive the selling and investors have little appetite for risks.
In the third quarter, Nvidia’s good news was initial sales of its new Turing-based GPU and notebook sales. This offset gaming console declines.
But the bad news is the inventory build of its last-generation Pascal GPU. This card is the GPU of choice for gamers due to the competitive pricing at the mid-range level. Nvidia’s next two quarters will face working down channel inventories. As it competes to hold market share, prices will likely fall beyond the holidays. AMD (NASDAQ: AMD) may add pressure to Nvidia’s GTX-based cards with a price cut on the RX 580 and a release of the RX 590.
In the data center and AI space, Nvidia will continue to perform well. Automotive sales in Q3 reached $172 million, up 19% Y/Y. And although GAAP income topped $1.23 billion, up 48% Y/Y, the upcoming slowdown puts a lid on the stock multiple. Now’s the time to look for an entry point in NVDA stock.
