Don't Sell Nvidia Corporation Stock Before Reading This

NVIDIA valuations Are Really Attractive

The result of the strong earnings growth and a falling stock price has led to a significant drop in the valuation multiples for NVIDIA. NVIDIA stock currently trades at a price-to-earnings (PE) ratio of 43.4, which is down from a 62X multiple on Feb 8. That's a 30% compression in the multiple in just 9 trading sessions. The only fundamental change over this time period was that the company beat Wall Street estimates by a big margin. Well, and it's not like the management expects this growth to taper off anytime soon.

NVIDIA Expects Its Current Momentum To Continue

Quoting Jen-Hsun, CEO of NVIDIA, from the latest earnings call, "I mean, when you look back on last year and we look forward, there's a lot of reasons why Datacenter business overall grew 3x, grew by a factor of three. And so I would expect that to happen, to continue." He expects the Datacenter division to continue on its current growth trajectory. Referring to the various products which NVIDIA has developed for the cloud, Jen stated, "And so these pieces, AI, high-performance computing, cloud computing, GRID and DGX all in contribution, contributed to our growth in Datacenter quite substantially. And so my sense is that, that as we look forward to next year, we're going to continue to see that major trend."

NVIDIA also expects its gaming segment growth to continue. In his bearish note, Nomura analyst Romit Shah stated that "the sell-side consensus has underappreciated the slowdown in video gaming" and reduced his price outlook to $90, from an earlier $100. Well, the management thinks otherwise. In response to a question from Merill Lynch's Vivek Arya, regarding the gaming cycle, the NVIDIA CEO said "Well, let's say we typically assume that we have an installed base of a couple of 100 million GeForce gamers, and we've upgraded about two-quarters of them, as in two operating quarters out of four years. It takes about three to four years to upgrade the entire installed base. And we started ramping Pascal, as you know, a few quarters ago. And our data would suggest that the upgrade cycle is going well, and we have plenty to go."

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Disclosure: Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a ...

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