Nvidia (NVDA -0.99%) shareholders should buckle up and prepare for turbulence on Tuesday, as Wall Street analysts are presenting conflicting opinions on where the stock's heading in the Q1 earnings season.
After opening up 2.8% this morning, Nvidia shares gave back all their gains just minutes later -- only to U-turn again and resume rising. As of 10:10 a.m. ET, they're climbing higher once more, up a solid 3%.
Yesterday, as you'll recall, Nvidia stock got hit by a downgrade from investment bank R.W. Baird, which contributed to a decline of more than 5% in the semiconductor giant's shares. This morning, three more analysts chimed in on Nvidia. Namely:
- Susquehanna Securities cut its price target on Nvidia shares by 11%, to $320, citing "modestly negative" trends for semiconductors in 2022 as "crypto prices" decline and the work-from-home movement peters out. Susquehanna points to a 36-point reduction in the premium over manufacturer's suggested retail price paid for retail graphics processing units (GPUs) as evidence that things are starting to get rocky in the semiconductors market.
- Contrariwise, Oppenheimer sees at least some semiconductor prices continuing to rise into Q1 and says Nvidia remains one of its top picks heading into Q1 earnings, according to a write-up on StreetInsider.com.
- Breaking the tie may be Bank of America, which argued today that after selling off 26% year to date, "the recent weakness in NVDA is overdone." BofA acknowledges "headwinds" to GPU sales from lost sales in Russia, supply chain challenges in China, and weak demand for cryptocurrency mining in light of declining Ethereum prices. Nevertheless, Bank of America remains optimistic that strong demand for gaming and the need for fast chips to operate data centers will continue to support Nvidia's sales -- and its stock price.
According to Bank of America, Nvidia stock is worth $375 a share and is therefore well worth buying at today's price of roughly $225 a share. But when you think about it, even the dissenting voice from Susquehanna -- that's the one that cut its price target on Nvidia to $320 -- still implies a pretty gigantic 42% leap in Nvidia's stock price over the next 12 months.
Granted, there's still the question of whether Bank of America (or Susquehanna for that matter) is right about Nvidia. Already today, at $225 per share, Nvidia stock costs 56 times trailing earnings -- and 68 times free cash flow (FCF). These are already expensive valuations for a stock that most analysts agree will probably grow earnings at only 24% on average over the next five years. And for Nvidia to go to $320 a share (much less $375), the stock would have to get even more expensive, and investors would have to be willing to pay even higher multiples to earnings and FCF than they are doing today.
If you're buying Nvidia stock today, that's the bet you're making -- that investors in the future will decide price is no object and pay through the nose to own Nvidia.