In Focus: Nvidia
After a meteoric rise in Nvidia's stock price over the past two years that made millions of dollars for institutional investors, the stock price has been in a free fall. Since hitting $292 per share in early October the stock has lost 50% of it's value and now trades at $145 per share. So what happened?
According to Nvidia management, “our near-term results reflect excess channel inventory post the crypto-currency boom..."
Simply put we (Nvidia) have a lot of inventory related to cryptocurrency mining and no one cares about cryptocurrency mining any more, or at least at the moment.
The Rise: Lightening in a Bottle
The Rise of Nvidia is very "lightening in a bottle." The stock's rise can be linked to the rise of cryptocurrencies and cryptocurrency mining and P.C. gaming. Who saw crypto mania coming four or five years ago? As a console gamer since forever, P.C. gaming has always been around, but who knew that eSports was ready to be a thing? The thought of professional gamers and gaming competitions had been around for a while, since the Nintendo Power days, but could never seem to get off of the ground and now it's here and it's a big thing.
But Nvidia isn't the only microchip company that's taken a beating. The chart below from Marketwatch.com shows just how bad the sector as a whole is doing.
GPUs or Graphic Processing Units aren't just used for gaming and cryptocurrency mining. GPUs are used for advanced computing. The ability of GPUs to digest big data computing issues make it ideal for artificial intelligence, machine learning, PC gaming, and crypto mining. Nvidia has a 70% market share of the GPU market. In 2017 the GPU market was valued at $79 billion and is expected to reach $172 billion by 2025 according this report.
While the company did miss Q3 revenue estimates by $60 million, revenue grew 20.5% year-over-year. Nvidia boast $7.5 billion in cash and short-term investments and $1.9 billion in debt. At the current $145 per share the stock is 8% above it's 52-week low and as we stated earlier 50% off of it's 52-week high. While revenue growth for the next fiscal year won't be spectacular by Wall Street standards the company is expected to see revenue growth of 6%. The company pays a measly $0.16 per share in quarterly dividend, not enough to buy the Ferrari, but enough to rent your patience while it clears up its inventory issues.
When Sellers Become Buyers
Citron Research, famously known for their short positions has initiated a buy on Nvidia. The research company believes Nvidia "offers an appealing risk-to-reward, and that the stock will see $160 per share before it see's $120 per share.
In late August of this year Citron went short on Nvidia when the stock was trading around $250 per share. Citron's bet was that Nvidia would trade at or around $200 per share by April 2019, however Christmas came early for Citron with Nvidia now trading around $145 per share. Ching! Ching!
Ugly and Out of Fashion
On Wall Street, stocks that were once the Belle of the Ball can quickly become ugly and out of fashion. This has happened to Nvidia. This may be the time to pounce on Nvidia, before it gets cleaned up and Wall Street comes back to it.
Nvidia has the majority market share of the GPU market, and the GPU market is expected to continue growing into 2025. The company pays a dividend, is expected to grow revenue in the next fiscal year, has almost four times more cash and short-term investment than debt, and a return on equity and return on assets that trumps its industry and sector averages. We're with Citron on this one, Nvidia is BUY!