Nvidia Stock Valuation “Is at an Extreme”

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Aug. 13, 2017 11:53 p.m. ET


Nvidia



NVDA -5.329610295010319%



NVIDIA Corp.


U.S.: Nasdaq


USD155.96


-8.78
-5.329610295010319%



/Date(1502485200161-0500)/


Volume (Delayed 15m)
:
37029516



AFTER HOURS



USD156.1


0.14
0.08976660682226212%


Volume (Delayed 15m)
:
401031




P/E Ratio
44.18130311614731

Market Cap
92796203994.751


Dividend Yield
0.3590664272890485%

Rev. per Employee
810176









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NVDA in







Your Value
Your Change









Short position




(NVDA: Nasdaq)
By MKM Partners ($164.74, Aug. 11, 2017)

Nvidia’s valuation keeps us on the sidelines.

Nvidia (ticker: NVDA) shares continue to trade at a significant premium to the semiconductor peer group at 44.3 times our new fiscal 2019 earnings-per-share estimate versus the peer group average of 18.6 times.

While we believe that Nvidia’s positioning in multiple multibillion-dollar growth markets should warrant a premium to its peer group, we think that the current valuation is at an extreme, particularly with slowing year-over-year growth rates in key end-markets. Given our increased EPS estimates, we are raising our fair value estimate to $120 from $106 based on a 32 times multiple on our new fiscal 2019 EPS estimate of $3.75.

Nvidia reported fiscal second quarter (ended July) revenue of $2.230 billion and GAAP EPS of 92 cents, above consensus estimates for $1.964 billion and 70 cents. Revenue increased 56% year-over-year and 15% sequentially with revenue incremental to guidance partially driven by cryptocurrency related sales. Growth during the quarter was driven by graphics processing units (GPUs) and mostly related to the gaming and professional visualization end markets. GPU revenue was $1.900 billion (85% of overall revenue), up 59% against the year-ago period and Tegra processor revenue was $333 million (15% of overall revenue), up 101% year-over-year and flat sequentially. GAAP gross margin was 58.4% while non-GAAP gross margin was 58.6%, in line with guidance and declining sequentially, as expected, given the lapse of


Intel



INTC -0.7470946319867183%



Intel Corp.


U.S.: Nasdaq


USD35.87


-0.27
-0.7470946319867183%



/Date(1502485200182-0500)/


Volume (Delayed 15m)
:
18215402



AFTER HOURS



USD35.9


0.03
0.08363534987454697%


Volume (Delayed 15m)
:
1059858




P/E Ratio
13.743295019157088

Market Cap
168553124980.927


Dividend Yield
3.0387510454418734%

Rev. per Employee
582179









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INTC in







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Short position




(INTC) (rated at Buy, $42 price target) licensing revenue.

Nvidia delivered strong fiscal-second-quarter results and provided third-quarter guidance that was above current consensus estimates. The near-term upside to consensus expectations is partially being driven by cryptocurrency related demand. Growth is moderating, modestly, in core emerging growth areas such as the automotive and datacenter segments. We remain Neutral on Nvidia shares, which trade at a significant premium to the semiconductor peer group at 44.3 times our new fiscal 2019 EPS estimate versus the peer group average of 18.6 times. While we believe that Nvidia’s positioning in multiple multibillion dollar growth markets should warrant a premium to its peer group, we think that the current valuation is at an extreme, particularly with slowing year-over-year growth rates in key end markets.

Based on Nvidia’s outlook, we are increasing our third-quarter revenue estimate to $2.350 billion from $2.048 billion. Our GAAP EPS forecast increases to 92 cents from 72 cents previously. The current consensus revenue and EPS estimate for the third quarter are $2.140 billion and 79 cents. Nvidia continues to execute well in taking advantage of numerous growth opportunities. Even with our estimate increases, though, Nvidia shares trade at a significant premium to the semiconductor peer group at 44.3 times our new fiscal 2019 (calendar 2018) EPS estimate of $3.59 versus the peer group average of 18.6 times. While we believe that Nvidia’s positioning in multiple multibillion dollar growth markets should warrant a premium to its peer group, we think that the current valuation is at an extreme, particularly with slowing year-over-year growth rates in the high growth automotive and data center markets.

— Ruben Roy

The companies mentioned in Hot Research are subjects of research reports issued recently by investment firms. Their opinions in no way represent those of Barrons.com or Dow Jones & Company, Inc. Some of the reports’ issuers have provided, or hope to provide, investment-banking or other services to the companies being analyzed. Share prices at the time the report was issued and the date of the report are in parentheses.

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