Do you own Nvidia (NASDAQ:NVDA)? If you’ve held NVDA stock throughout 2018, you’re probably a very frustrated investor.
That’s because every time it looks like it’s ready to go on a run — January, June, and late September — something happens to stop it in its tracks, whether it be a question mark in its earnings reports or a macroeconomic issue such as tariffs, Nvidia stock just hasn’t been able to get any traction in 2018.
Don’t get me wrong, on a calendar-year basis, I’d rather be a Nvidia shareholder — up 3.2% year to date through November 13 — than an owner of SNAP (NYSE:SNAP), which is down 47% and fading fast — but given the free cash flow growth it’s experiencing in 2018, it would be nice to see a little more upside.
A Mixed Bag for NVDA Earnings
From all accounts, Nvidia’s earnings will be good, but not great, when it reports third-quarter results Thursday.
In one of the most interesting analyst calls, Susquehanna analyst Christopher Rolland has lowered his 12-month price target by $20 to $230, but has raised its rating to “positive” from “neutral.”
“To be clear, this is not a call on NVIDIA’s quarter … in fact, we think the odds are substantial that management’s guidance will miss the Street’s 4Q,” wrote Rolland in a note to clients. “However, we believe the company’s near-term issues should pass in a quarter (or two), while valuation supports greatly reduced estimates and longer-term opportunities abound.”
I don’t know about you, but to me, Rolland’s words seem to indicate he’s not sure where the stock is headed in 2019.
Over at Trefis, it expects Nvidia to deliver strong GPU sales, which should translate into decent earnings growth of 20% year over year or a little more than that. However, it does suggest that the 10% tariff — which becomes 25% in January — could have a severe drag on results.
Again, no one seems to have a handle on Nvidia’s earnings, in part because of those tariffs.
“We believe that GPUs will be the key growth driver for Nvidia in Q3,” Trefis stated November 13. “We currently estimate the company’s overall revenues to be a little under $3.10 billion in Q3, of which 84% can be attributed to GPUs, and Tegra Processors making up for the rest.”
As far as actual earnings numbers, analysts expect Nvidia to earn $1.71 a share in Q3 2019. On an adjusted non-GAAP basis, they’re predicting $1.93 a share. In Q3 2018, Nvidia earned $1.33 a share, so if the analysts are correct, it would be a big step up from last year.
Nomura analyst Romit Shah isn’t nearly as positive about Nvidia’s business at the moment. He believes that Nvidia will be affected by a slowing of cloud-computing spending by large corporations along with a mediocre release of its Turing GPU architecture.
I guess we’ll find out tomorrow.
Why NVDA Stock Will Hit $350
Predictions. They aren’t worth the paper they’re written . I should know. I predicted in October 2017 that NVDA stock would hit $350 before Advanced Micro Devices (NASDAQ:AMD) hit $25. That didn’t happen. Not even close.
As I like to say, “Even a blind squirrel finds an acorn every once in a while.” No disrespect meant to the visually impaired or small rodents.
My rationale for preferring NVDA over AMD is the difference in profitability and cash generation between the two.Over the trailing 12 months, Nvidia has a 37.2% operating margin and $4.1 billion in free cash flow. AMD’s operating margin and free cash flow for the TTM is 7.7% and $178 million. There’s just no comparison between the two companies when it comes to quality of earnings.
That said, as recently as late September, I was recommending AMD stock suggesting it could hit $40 by March 2019. Then came October and all bets were off.
What did I say about predictions?
Anyway, seeing as I can’t resist them, I believe Nvidia stock will hit $350 by May 2020, 18 months from now. And, for a special 2-for-1 prediction, AMD will hit $40.
If I’m right, I promise to end my fortune-telling ways.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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