In recent times, the Nvidia (NVDA) growth story has come under pressure due to a sharp decline of its gaming revenue – the segment which traditionally had been the main breadwinner.
For Morgan Stanley’s Joseph Moore, “derisking” the gaming numbers has been of vital importance. So, guidance for revenues showing a 60% decline in 2 quarters “certainly does that,” says the 5-star analyst who also expects the October quarter to be the bottom for the segment whilst anticipating a “fairly sharp rebound in gaming starting as soon as the January quarter, with a new product boost.”
Meanwhile, while gaming sales have hit the skids, Nvidia’s data center segment has been able to pick up the slack and has now surpassed it to become the main revenue generator. However, Moore also now sees some worrying in trends in this part of Nvidia’s business.
The persistent “sluggishness” in data center, says the analyst, comes as a bit of a surprise because most external checks and management’s commentary on demand would indicate that business is doing fine. However, the fact that the company has experienced low single digit growth for the past two quarters (including the October guide) and the fact that data center demand concerns were specifically mentioned in the recent inventory writedown make Moore cautious.
“We would be nibbling at the stock on any weakness here, but with the material multiple expansion as numbers have come down and the stock has recovered, we need some dust to clear around this data center situation to justify large upside from here,” Moore expounded on the issue. “But without visibility into what is holding back the data center growth rates, its hard to argue for enough upside to move to Overweight (i.e., Buy), for now, particularly given our view that higher multiples will remain under pressure in the current macro/rate environment.”
Accordingly, Moore rates NVDA an Equal-weight (i.e. Neutral) along with a $182 price target. (To watch Moore’s track record, click here)
6 other analysts join Moore on the sidelines, although they are countered by 23 positive reviews, which provide the stock with a Strong Buy consensus rating. The average price target stands at $215.18, making room for 12-month gains of 32%. (See Nvidia stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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