NVIDIA Corporation

NVDA Details

NVIDIA Corporation (NASDAQ: NVDA) produces discrete graphics processing units (DGPPUs) to improve the user experience on computers. Chips from the firm can be found in various places, including high-end gaming PCs, data centres, and car entertainment systems.

Latest News:

• Inadequate Disclosure Charges by SEC: On May 06, 2022, The Securities and Exchange Commission said that it had settled charges against technology company NVIDIA Corporation for failing to disclose the impact of cryptomining on the company's gaming business. According to the SEC's decision, NVIDIA failed to disclose that cryptomining constituted a substantial component of its material revenue growth from the sale of its graphics processing units (GPUs) designed and promoted for gaming during successive quarters in the fiscal year 2018. The method of receiving crypto rewards in exchange for confirming crypto transactions on distributed ledgers is known as cryptomining. In 2017, as the demand for and interest in cryptocurrency grew, NVIDIA customers began to use their gaming GPUs for cryptomining.

FY22 Results:

• Growth in Topline: The company reported a YoY growth of 61.40% in revenue to USD 26.91 billion in FY22 (ended January 30, 2022) from USD 16.68 billion in FY21, driven by strong demand for NVIDIA computing platforms.
• Growth in Profitability: In FY22, NVDA's net income increased to USD 9.75 billion from USD 4.33 billion in FY21.
• Cash and Debt Position: The company had USD 21.21 billion in cash and cash equivalents as of January 30, 2022, and total debt of USD 10.95 billion.

Key Risk:

• Dependence on Third-Parties: The company does not own or operate a wafer fabrication plant, and it does not manufacture the silicon wafers utilized in its products. Instead, it relies on industry-leading foundries like Taiwan Semiconductor Manufacturing Company Limited and Samsung Electronics Co. Ltd. to fabricate semiconductor wafers using their fabrication equipment and expertise. Instead of relying on independent subcontractors, it also does not assemble, test, or package its products. Any breach of contract by these vendors could jeopardise the company's operations.
• Risks Related to Demand, Supply and Manufacturing: If company fails to estimate customer demand properly, there may be a mismatch between supply and demand, and financial results could be harmed.

Outlook:

• Q1FY23 Guidance: As of FY22, NVDA expects Q1FY23 net sales to be about USD 8.10 billion (+/- 2%), along with GAAP and non-GAAP margin of 65.2% and 67%, respectively. It expects to incur capital expenditure of USD 350 – 400 million.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

NVDA's stock price has increased 25.63% in the past six months and is currently trading close to the middle -band of its 52-week range of USD 122.72 to USD 346.47. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 210.15.

Considering the significant growth in the stock price, recent charges from SEC, strong margins, positive outlook, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the current price of USD 176.13, up 3.81% as of May 10, 2022, at 07:43 AM PDT.

Three-Year Technical Price Chart (as on May 10, 2022, at 07:43 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.