Graphics chip manufacturer Nvidia has a future on the stock market

DThe modern computer world would be unthinkable without the invention of the graphics chip. And the inventor still plays a big role and even expands his position. We are talking about Nvidia. When it comes to the biggest mainstream beneficiaries of the temporary crypto boom, the American graphics processor specialist is also mentioned. Having grown up in personal computers, servers and gaming consoles, the company also had the perfect offering ready when the crypto community desperately needed powerful graphics cards for the so-called mining of digital currencies like bitcoins.

Lately, however, the gold rush sentiment around Bitcoin & Co has flattened out. About a year ago, there was just over 67,000 dollars for a bitcoin. In the past few weeks, however, prices of the oldest and best-known cryptocurrency have dipped below the $20,000 mark at times. Other digital currencies have also taken a hit amid the general market turmoil as investors dumped various types of investments to reflect increased market risks.

Cost control and targeted investments

Despite their foray into cryptocurrencies, gaming remains Nvidia’s bread and butter. But things haven’t gone so well there lately. During the global corona pandemic, people initially had to stay at home more often and distract themselves. Many also did this using video games.

In the meantime, however, this particular Corona boom is over for Nvidia. Inflation and the weaker economic outlook are also having a negative impact. People need to think more about many of their expenses. In this case, video games may not be considered necessary expenses.

Christoph Scherbaum is a stock market specialist and financial journalist from Ludwigsburg.

Image: Christoph Scherbaum

As a result, Nvidia had to report preliminary key data for the second quarter of the 2022/23 financial year (from the end of July) which fell short of its own expectations. Total revenue is expected to be $6.7 billion, compared to an earlier forecast of $8.1 billion. While that would mean a slight increase of 3 percent over the previous year, it would equate to a 19 percent decrease over the previous quarter.

The main reason for the weak performance was under-expected revenues in the mentioned game area. Here, the company reported sales of $2.04 billion, a decrease in sales of 44 and 33 percent compared to the previous quarter and compared to the same period last year. Data center revenue was $3.81 billion, up 1 percent sequentially. Although a new record was reached here, revenue in this area was also below expectations due to supply chain issues around the world.

In the short term, management now wants to respond with tighter cost controls and more targeted investments. However, the share buybacks continue, also because we continue to see strong cash flow generation and high growth in the future. With all the recent bad news, Nvidia should remain well positioned with its graphics chips to take advantage of future trends such as gaming, cryptocurrencies, autonomous driving, data centers and most importantly artificial intelligence.

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For the detailed view

Most analysts classify the stock as a buy. UBS, for example, lowered its price target from $280 to $220 after the sell warning, but continues to give Nvidia a buy recommendation. US analysts such as JP Morgan, Mizuho Securities and Raymond James have also reacted and lowered the price target, but confirmed the buy rating.

In the tech sector, Nvidia should therefore continue to be one of the most promising stocks – although investors will also need strong nerves in the future, as the recent price development shows.

Nvidia stock has risen sharply over the past two years. After a short-term, corona-related setback in March 2020 to $45, prices have risen almost eightfold in the following 20 months, with a new record high of $346 marked last November. Nvidia was dragged down by the subsequent crash in tech stocks. The price collapsed to 144 dollars at the beginning of July this year, but in the meantime has been able to regain the 180 dollar mark at times.

In terms of charts, Nvidia stock is currently still in a downtrend. Only when the 200-day line is recovered will the trend arrows point upwards again. In this case, the next price targets are $300 and the highest level at $346.

Despite the recent sharp drop in Nvidia’s stock price, the decade’s performance remains sensational. Over a ten-year period (on a dollar basis), the average capital gain is still 48.8 percent per year. On a euro basis, the ten-year return is even better with an average of 51.9 percent annually. A one-time investment of EUR 10,000 in August 2012 (opening price: EUR 2.73) would have increased by a factor of 64 at times to around EUR 644,000.

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