Chip Giant Warns On China Lockdowns, Russia-Ukraine War

Nvidia (NVDA) chips power a future of self-driving cars and cryptocurrencies. NVDA is a giant in data centers and gaming, but challenges continue to mount. Is Nvidia stock a buy right now?


Nvidia Stock News

On June 10, rival Advanced Micro Devices (AMD) gave a bullish long-term growth outlook, citing data centers in particular. That came after Intel (INTC) warned days earlier that its business outlook is worsening.

On May 25, Nvidia beat Wall Street’s estimates for its fiscal first quarter. But disappointing sales guidance led to a flurry of analyst price target cuts for Nvidia stock.

The chipmaker tied its light outlook to the Russia-Ukraine war and Covid lockdowns in China.

Recently, several reports suggested that high inflation is hurting demand for PCs and consumer electronics.

For those looking for top large-cap stocks to buy now, here’s a deep dive into NVDA stock.

NVDA Stock Basics

The fabless chipmaker pioneered graphics processing units, or GPUs, to make video games more realistic. It’s expanding in AI chips, used in supercomputers, data centers, drug development and driverless cars.

For example, Nvidia supplies the chip that acts as the “brain” for the Nio (NIO) ET7, a highly autonomous electric vehicle. It also supplies to several other EV makers. In addition, Nvidia supplies Amazon (AMZN) Web Services with chips for data centers.

Nvidia’s GPUs act as accelerators for central processing units, or CPUs, made by other companies. In April, Nvidia unveiled its first CPU, called Grace, which uses chip designs from U.K.-based Arm for high-end computing. With its own CPU, Nvidia will offer a more complete system for data centers, directly challenging processor giants Intel (INTC) and Advanced Micro Devices (AMD).

In late March, Nvidia announced major updates to its Omniverse platform for online collaboration and simulation. It also unveiled new Hopper GPUs and the Grace CPU Superchip for data centers.

In addition, Nvidia chips are used for Bitcoin mining.

Nvidia Stock Technical Analysis

Shares of Nvidia remain mired below key levels of technical support. The chip stock has erased all gains from a successful October breakout and has fallen near a 52-week low. For now, it has a long road to recovery.

NVDA earns a IBD Composite Rating of 73. In other words, Nvidia stock has outperformed 73% of all other stocks in terms of combined technical and fundamental metrics.

Investors generally should focus on stocks with Comp Ratings of 90 or even 95 and above. While it’s struggling now, NVDA can often be found on the IBD Leaderboard, IBD 50Big Cap 20 and Sector Leaders lists.

NVDA stock has more than halved from its November 2021 peak. It tumbled in a tech-led stock sell-off sparked by fears of rising inflation and interest rates.

The relative strength line for NVDA stock is lagging this year. That strength indicator rallied for much of the past three years, IBD MarketSmith charts show. A rising RS line shows that a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.

The Accumulation/Distribution Rating is a B, a sign of moderate buying by institutions over the past 13 weeks. As of March, 5,339 funds owned NVDA shares. Nvidia has eight quarters of rising fund ownership, the IBD Stock Checkup tool shows.

Nvidia stock owns an RS Rating of 31, meaning it has outperformed just 31% of all stocks over the past year. The iShares PHLX Semiconductor ETF (SOXX) holds both Nvidia and AMD stock.

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Nvidia Earnings Growth Slowed In Q1

In its latest quarter, Nvidia earnings increased 49% per share, year over year. Sales climbed 46%. But both earnings and sales growth slowed from the prior quarter. The company’s data center revenue rose 83% from a year ago. Gaming revenue grew 31%.

In an earnings release, CEO Jensen Huang said that Nvidia faced a “challenging macro environment.” Management added on an earnings call that it will slow hiring and control expenses.

For fiscal 2023, analysts expect EPS to jump 23% as revenue increases 26%, according to FactSet. While strong, that would be well below the scorching pace of growth seen in 2021 and 2022. Both earnings and revenue are seen growing further in 2024, but at a slower double-digit pace.

Nvidia Stock EPS, SMR Ratings

Nvidia’s EPS Rating is a superior 97 and its SMR Rating is an A, on a scale of A to a worst E. The EPS rating compares a company’s earnings growth to other stocks. Its SMR Rating gauges sales growth, profit margins and return on equity.

Out of 47 analysts covering NVDA stock, 39 rate it a buy. Seven have a hold and one has a sell, according to FactSet.

The pandemic fueled demand for Nvidia chips in home computing, video games and data centers.

The chip shortage hit automakers especially hard. Nvidia makes chips for car infotainment and autonomous driving systems.

As cloud gaming grows around the world, Nvidia’s new cloud gaming service could become a growth driver. Rival services include Google Stadia, Microsoft Xbox Network and Amazon Luna.

Nvidia designs dedicated chips for mining cryptocurrencies. Its cryptocurrency mining processors, or CMPs, launched in February 2021.

In February 2022, Nvidia ended its $40 billion Arm takeover bid because of regulatory challenges.

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Nvidia’s Omniverse: ‘Plumbing’ For Metaverses

Nvidia has made a big push into metaverse applications. Meta Platforms (FB) (formerly Facebook) and Microsoft (MSFT) see a big future in immersive virtual reality.

At the GTC event March 22, Nvidia announced Omniverse Cloud, a suite of services that gives artists, creators, designers and developers instant access to the nascent Nvidia Omniverse platform. While other companies, including Meta, are focusing on video games, entertainment and casual meetups, Nvidia is targeting business applications for the metaverse.

According to Nvidia, the Omniverse platform provides the “plumbing” on which metaverses can be built. Lockheed Martin (LMT) is testing Nvidia’s Omniverse to simulate and manage wildfires. Other companies are using it to create “digital twins” of buildings and factories.

Nvidia’s chips and computing power are key to the emerging metaverse. Many companies will build the metaverse, analysts say, but most of the revenues will come from companies providing the infrastructure — such as NVDA.

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Rival Chip Stocks

Nvidia and AMD are established leaders in the semiconductor industry.

Among top chip stocks, Nvidia helps to lead IBD’s Electronics-Semiconductor Fabless industry group. Fabless companies contract with foundries to make the chips they design. Other chip companies own their fabrication plants.

Besides NVDA, fabless chip stocks include Qualcomm, Broadcom (AVGO) and Monolithic Power Systems (MPWR). Amid industry headwinds, the fabless group ranks No. 157 out of 197 industry groups.

For the best returns, investors should focus on companies that are leading the market and their own industry group.

Is Nvidia Stock A Buy Or Sell?

On a fundamental level, Nvidia earnings and sales are expected to keep growing, though at a less torrid pace than seen in recent years.

The chipmaker is expanding in growth areas, such as data centers, automated cars and cloud gaming. The adoption of metaverses and cryptocurrencies could further stoke demand for Nvidia chips.

Meanwhile, new gaming chips underscore Nvidia’s continued dominance in core markets. However, challenges from rate hikes, economic uncertainty and the Russian invasion are growing. China’s Covid-fueled slowdown is a new worry.

NVDA is a top chip stock, but the semiconductor sector is badly lagging. NVDA stock remains below key support levels and has a lot of recovery work to do.

Bottom line: Nvidia stock is not a buy. As a leading chip stock with exposure to top end markets in data centers and gaming, Nvidia is always one to watch.

Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.


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