Nvidia Stock Up 20% This Year- Is The Party Over?

April 15th, 2020 by Trefis Team
-34.55%
Downside
142
Market
92.84
Trefis
NVDA: NVIDIA logo
NVDA
NVIDIA

Having risen ~20% since the beginning of this year, at the current price of around $284 per share, we believe Nvidia (NASDAQ: NVDA) could see significant downside.
Why is that? The key is Nvidia’s stock is still up around 114% since the beginning of 2019, a little over a year ago.
Our dashboard Why Nvidia Stock moved 113.7% provides the key numbers behind our thinking, and we explain more below.

Note: Nvidia’s fiscal year ends in January.

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This rise over the past year is justified by the roughly 137% growth in Nvidia’s PE multiple, which went from 26x in 2018 to around 62x in 2020. Nvidia’s revenues saw a 12% growth over the same period, but an 18% drop in net margins, combined with a 2% rise in outstanding share count, saw EPS drop by ~10%. Despite this drop in EPS, the PE multiple expanded, due to the potential of Nvidia’s new Turing products, and a revival in data center demand.

However, given the volatility of the current situation, there is significant possible downside for Nvidia’s stock price when compared to past levels – $133 at the end of 2018, and $235 as recent as in late 2019.

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus has meant there could be a drop in gaming machine and laptop sales, hence lowering the demand for Graphics Processing Units manufactured by Nvidia. We believe Nvidia’s Q1 2021 results in May will confirm the hit to its revenue. It is also likely to accompany a lower Q2 as well as 2021 guidance.

If there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/E decline from the current level of 62x to ~35x (the PE multiple level in 2019), which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $160.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a more complete macro picture, and complements our analyses of Coronavirus impact on a diverse set of companies. The complete set of coronavirus impact and timing analyses is available here.

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