What happened
Shares of Nvidia (NVDA 3.48%) traded lower on Wednesday, falling as much as 5.1%. As of 11:26 a.m. ET, the stock was still down 3.9%.
The catalyst that sent the chipmaker lower today was bearish commentary by a Wall Street analyst that could signal additional declines for the sector.
So what
Bank of America analyst Vivek Arya lowered his price target on Nvidia to $220, down from $270, while maintaining his buy rating on the stock, according to The Fly. Even at the lower price target, this represents potential upside for investors of roughly 38% compared to Nvidia's closing price on Tuesday. It's also worth noting that his bearish view wasn't necessarily company-specific to Nvidia.
The analyst noted that the semiconductor industry is cyclical in nature, with downturns occurring every three to four years. In a research note to investors, Arya said, "We could be due for another one," noting that tighter monetary policy across the global stage, geopolitical turmoil (namely Russia's war on Ukraine), and growing weakness in consumer spending could result in lower demand for semiconductors in the back half of 2022.
On a positive note, however, Arya acknowledged the weakness "could be cushioned by richer non-consumer mix, robust pricing, expanding content, and constrained supply," so the news wasn't all bad.
Now what
It's important to put the news in the context of Nvidia's recent results. In its fiscal 2023 first quarter (ended May 1), Nvidia generated record quarterly revenue of $8.29 billion, up 46% year over year, fueled by record-setting sales from its two biggest operating segments. Profits took a hit as a result of a termination charge from its scuttled ARM acquisition, but on an adjusted basis, earnings per share of $1.36 climbed 49%.
Given the ongoing economic uncertainty, there are simply no guarantees that Nvidia will continue its record-setting sales growth. But given the company's history of market leadership in gaming chips and its strong growth in the cloud computing and data center arena, it is well positioned to withstand any cyclical downturn in the semiconductor space.
Rather than concerning themselves with fits and starts in the broader sector, investors should focus on Nvidia's industry-leading position and large and growing opportunity.
