What happened
Shares of Nvidia (NVDA 2.76%) continued to tumble on Friday, falling as much as 4.5%. As of 11:29 a.m. ET, the stock was still down 3.1%, capping off a week when shares have declined roughly 13%.
While the stock was no doubt caught up in the broader market downdraft, bearish comments by a Wall Street analyst about the state of the industry added further pressure to the share price.
So what
Truist analyst William Stein painted a bleak picture for the semiconductor industry, at least in the near term, according to The Fly. While he maintained a buy rating on Nvidia shares, he lowered his firm's 12-month price target on the stock from $347 to $298. Even after the change, however, this still represents 23% upside for investors compared to Thursday's closing price.
Image source: Nvidia.
Stein noted a rapid and unexpected decline in chip orders earlier this week. "On Wednesday afternoon we learned of a sudden negative shift in demand signals from a wide swath of computer, consumer, and communications OEMs [original equipment manufacturers] to at least some of their [semiconductor] suppliers," he wrote in a research note to clients.
He views the change as "hard evidence" of near-term headwinds for some chipmakers. Stein was quick to point out that the cuts were primarily limited to the second quarter and demand for the remainder of 2022 was still strong. While he views the headwinds as temporary, he fears the situation could be "just enough" to push the industry into a traditional cyclical downturn.
Now what
It's important to put this news in context. In the fourth quarter, Nvidia generated record quarterly revenue of $7.64 billion, up 53% year over year, driven by record-setting sales in each of its major operating segments. Profits were equally robust, as earnings per share (EPS) of $1.18 surged 103%.
The potential for weakening demand in the near term, or even a temporary downturn, isn't of any consequence to those with a longer view. While investment banks focus on the coming three months, investors looking out three to five years should take this for what it is: short-term noise to be ignored.
