NVIDIA Corporation (NVDA) offers graphics, computing, and networking solutions in the United States, Taiwan, China, and internationally. The company operates through two segments: Graphics and Compute & Networking. It sells its products to original equipment and device manufacturers, independent software vendors, internet and cloud service providers, mapping companies, and other ecosystem participants.

The company reported disappointing fiscal 2023 second-quarter results and provided a weak outlook for the third quarter. Its revenue is expected to be $5.90 billion, plus or minus $118 million, which accounts for a nearly 12% sequential decline. Gaming and Professional Visualization revenue is expected to decline sequentially as OEMs and channel partners reduce inventory levels to align with slowing demand.

Moreover, increasing export regulations are impacting NVDA. On October 7, new export restrictions were imposed on U.S. chipmakers, including NVDA, to prevent American technology from advancing China’s military power. The rules will require the companies to obtain a license from the Commerce Department to export advanced chips and chip-manufacturing equipment to Chinese entities.

Furthermore, last month, the U.S. government blocked NVDA from exporting two of its top computing chips, A100 and H100 graphic processing units, for artificial intelligence (AI) work to China. The company stated that the ban is expected to impact its revenue by $400 million in the current quarter.

The stock has plunged 33.4% over the past six months and 56% year-to-date to close the last trading session at $132.61. It is currently trading 61.7% below its 52-week high of $346.47, which it hit on November 22, 2021.

Here’s what could influence NVDA’s performance in the upcoming months:

Deteriorating Financials

NVDA’s non-GAAP gross profit declined 29.1% year-over-year to $3.07 billion for the fiscal 2023 second quarter ended July 31, 2022. Its non-GAAP operating expenses increased 38.1% year-over-year to $1.75 billion.

The company’s non-GAAP net income fell 50.7% year-over-year to $1.29 billion. In addition, its non-GAAP EPS came in at $0.51, down 51% year-over-year.

Unfavorable Analyst Estimates

Analysts expect NVDA’s revenue for the fiscal 2023 third quarter (ending October 2022) to decline 17.7% year-over-year to $5.85 billion. The consensus earnings per share estimate of $0.71 for the current quarter indicates a decline of 39.5% from the prior-year period. Likewise, the company’s EPS for the ongoing year (ending January 2023) is expected to come in at $3.36, down 24.3% year-over-year.

In addition, analysts expect the company’s revenue and EPS for the first quarter of fiscal 2024 (ending April 2023) to decline 19.1% and 32.9% year-over-year to $6.70 billion and $0.91, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, NVDA is currently trading at 30.42x, 84.7% higher than the industry average of 16.47x. The stock’s forward EV/Sales multiple of 11.41 is 342% higher than the industry average of 12.58. Also, its forward EV/EBITDA of 49.45x is 320.4% higher than the industry average of 11.76x.

In addition, in terms of forward Price/Sales, the stock is currently trading at 12.21x, 387.3% higher than the industry average of 2.51x. Its forward Price/Cash Flow multiple of 44.68 is 168.9% higher than the industry average of 16.62.

High Profitability

NVDA’s trailing-12-month gross profit margin of 60.45% is 20.1% higher than the 50.35% industry average. Its trailing-12-month EBITDA margin of 35.91% is 196% higher than the 12.13% industry average. Likewise, the stock’s trailing-12-month net income margin of 26.03% compares to the industry average of 3.71%.

Furthermore, NVDA’s trailing-12-month ROCE, ROTC, and ROTA of 34.41%, 16.81%, and 17.81% compare to the industry averages of 6.51%, 3.80%, and 2.25%, respectively.

POWR Ratings Reflect Bleak Prospects

NVDA has an overall D rating, equating to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NVDA has a D grade for Value, in sync with its higher-than-industry valuation metrics. Also, the stock has a D grade for Stability, consistent with its 1.98 beta.

NVDA is ranked #82 out of 93 stocks in the Semiconductor & Wireless Chip industry. Click here to access NVDA’s POWR ratings for Growth, Momentum, Sentiment, and Quality.

Bottom Line

NVDA reported disappointing financials in the last reported quarter. Furthermore, slowing demand, supply chain constraints, and growing export restrictions will likely impact the company’s revenues and earnings in the upcoming quarters.

The stock is currently trading below its 50-day and 200-day moving averages of $138.19 and $190.15, respectively, indicating a downtrend. Therefore, it could be wise to avoid this fundamentally weak stock now.

How Does NVIDIA Corporation (NVDA) Stack Up Against Its Peers?

NVDA has an overall POWR Rating of D, equating to a Sell rating. Therefore, one might want to consider investing in other Semiconductor & Wireless Chip stocks with an A (Strong Buy) rating: STMicroelectronics N.V. (STM), Xperi Holding Corporation (XPER), and Renesas Electronics Corporation (RNECF).

NVDA shares were trading at $131.07 per share on Wednesday morning, down $1.54 (-1.16%). Year-to-date, NVDA has declined -55.40%, versus a -18.11% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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