Shares of Nvidia (NVDA -2.89%) were trading down 2.4% as of 9:35 a.m. ET on Wednesday after one analyst issued a warning about the graphic chip maker's near-term growth. The stock has since recovered some of the drop as of 10:05 a.m. ET.
Susquehanna analyst Christopher Rolland cited declining selling prices for Nvidia's graphics processing units (GPUs) designed for playing video games on a PC, which presents near-term risk to one of Nvidia's largest sources of revenue.
Nvidia has benefited from soaring demand for advanced computing applications, including data center operators buying high-powered graphics chips to process large data workloads with artificial intelligence. But gaming is still the company's largest segment. Last year, gaming revenue totaled $12.4 billion, growing 61% year over year.
Growth in gaming revenue is generated from a balance of higher unit sales and average selling prices, as gamers tend to upgrade to more expensive GPUs. The chip shortage during the pandemic caused an imbalance of supply and demand that pushed selling prices through the roof. Prices of Nvidia's GeForce RTX 30 series and Advanced Micro Devices' Radeon RX 6000 series had been trending up through 2021, but since the start of 2022, GPU prices have started to decline.
Rolland is not the first analyst to issue a warning over Nvidia's gaming segment. A few weeks ago, research analysts at Morgan Stanley also cautioned investors about a possible deceleration of growth in gaming.
It's worth noting that both Susquehanna and Morgan Stanley are bullish on Nvidia's long-term prospects. Plus, Nvidia shares have already fallen 50% from their all-time high of $346 in 2021. It seems investors were already expecting a slowdown in growth this year.
At a current share price of $177, the stock trades at a more attractive forward price-to-earnings ratio of 31.5. That looks like a cheap valuation for a company that analysts expect to grow earnings at a compound annual rate of 30% over the next five years.