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Are Stories of the Demise of NVIDIA Corporation (NASDAQ:NVDA) Greatly Exaggerated?

NVIDIA Corporation (NASDAQ:NVDA) has had an extremely interesting last week of action. The company laid an egg late last week, with disappointing results on the top and bottom line and a disappointing outlook for next quarter. In our coverage, we said we thought an extension lower over the next few days following that report would likely create an opportunity for new involvement.

On Tuesday, Andrew Left and Citron Research apparently agreed with that sentiment, tweeting out “Citron buys $NVDA. This is the first time in 2 years stock offers an appealing risk-reward to investors.  $NVDA still a player in AI and Data..will eat through inventory issue. We see $165 before we see 120.”

NVIDIA Corporation (NASDAQ:NVDA) shares caught some help in response. However, if you actually read the tweet, it’s about the least compelling call you could imagine.

But it certainly was effective.

As we have contended, while some will try to just box NVDA in as a chip play – and argue that it is still priced about twice where it should be to fall into line with the majority of the chip space on valuation metrics – we would look at this as a DC/AI-driven secular growth story.

As we discussed in our last piece, the problem here for the stock is about a longer-than-anticipated quagmire for the gaming/mining-related inventory correction, which now looks to pollute 2 more quarters.

But the secular themes haven’t changed at all. That problem is not something that interferes with the larger thesis in any way. Which is why we would see the $120-140 area compelling.

At this point, that bounce may already be underway, or traders may get another shot at it. If we see the Nasdaq move to test the February lows (which looks increasingly likely), that could create just such an opportunity, but not one for the faint of heart.

 

Binoculars from the Balloon

NVIDIA Corporation (NASDAQ:NVDA) operates as a visual computing company worldwide. It operates through two segments, GPU and Tegra Processor.

The market tends, rightly or wrongly, to see the company as in a competitive battle for market share in the GPU space with AMD, though each has been seeing seemingly unrestrained top-line growth over recent years.

The company’s GPU segment offers processors, which include GeForce for PC gaming and mainstream PCs; GeForce NOW for cloud-based game-streaming service; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for AI utilizing deep learning, accelerated computing, and general purpose computing; GRID provides power of NVIDIA graphics through the cloud and datacenters; DGX for AI scientists, researchers, and developers; and cryptocurrency-specific graphics processing units.

The Tegra Processor segment provides processors designed to enable branded platforms – DRIVE and SHIELD; DRIVE automotive computers and software stacks, which offer self-driving capabilities; SHIELD devices and services designed for mobile-cloud in home entertainment, AI, and gaming applications; and Jetson TX 2, an AI computing platform for embedded use.

The company’s products are used in gaming, professional visualization, datacenter, and automotive markets. NVIDIA Corporation sells its products to original equipment manufacturers, original device manufacturers, system builders, add-in board manufacturers, retailers/distributors, Internet and cloud service providers, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups, and other ecosystem participants.

NVIDIA Corporation (NASDAQ:NVDA) managed to rope in revenues totaling $3.2B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top-line growth of 20.7%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($7.6B against $1.6B).

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