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Why NVIDIA Stock Plunged 18% in December

By John Ballard - Updated Apr 16, 2019 at 1:39PM

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The crypto hangover is lingering.

What happened

Shares of the graphics chipmaker NVIDIA (NVDA 5.55%) lost 18.3% in value last month, according to data provided by S&P Global Market Intelligence. Concerns about a slowdown in the chip industry, on top of a weak third-quarter earnings report from the company, sent the shares tumbling to finish the year.

SPY Chart

SPY data by YCharts.

So what

To be sure, there wasn't any company-specific news last month that drove down the share price. It seems investors were still processing the bad news out of the chip industry starting in October when Texas Instruments revealed slowing demand from the auto and industrial markets. Then, in November, NVIDIA reported a weaker-than-expected quarter and gave a soft outlook for the fourth quarter. The shares have been in a tailspin ever since.

A laptop displaying a war plane flying in a video game.

Image source: NVIDIA.

During December, there were mixed opinions from Wall Street analysts about what to make of NVIDIA's near-term outlook. Most still rate the stock a buy, as NVIDIA seems well positioned for long-term growth across gaming, artificial intelligence (AI) applications, and self-driving cars. However, analysts were quick to cut their price targets on the stock during December, as management expects the oversupply of graphics cards following the bursting of the crypto bubble to take a few quarters to correct itself

Now what

Since the end of December, Goldman Sachs has issued a bearish forecast for the first half of 2019 for several top chip stocks, including NVIDIA. However, one analyst with Citigroup issued a bullish report for NVIDIA at the end of December citing the stock's lower valuation and the company's prospects in esports, deep learning, AI, and self-driving cars that still position NVIDIA for long-term growth. 

The stock currently trades at about 19 times next year's earnings estimates, and while the consensus estimate has NVIDIA only growing sales 5.5% next year, analysts now expect earnings to increase 15% per year over the next five years. 

Check out the latest NVIDIA earnings call transcript.

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