The business world is abuzz with excitement as companies from various industries debut their latest generative AI-powered chatbots, AI assistants, and AI services, revolutionizing how we travel, organize data, and create content. The biggest story of the first half of 2023 is the explosion of interest around generative AI, which is poised to transform our lives and work.

The frenzy around Artificial Intelligence (AI) has overtaken the stock market. Shares of renowned chipmaker NVIDIA Corporation (NVDA) have gained more than 185% year-to-date. Moreover, the stock has gained 261.4% over the past month and 165.1% over the past six months to close the last trading session at $421.80.

NVDA expects to generate a revenue of around $11 billion in the second quarter, crushing the Street expectations for $7.13 billion. For the first quarter, the company reported sales of $7.19 billion, also higher than the expected $6.52 billion. The Street is now projecting $10.05 billion in sales for the company’s second quarter.

The chipmaker also gained traction with the news of strategic partnerships with renowned companies. On June 26, the company partnered with Snowflake Inc. (SNOW) to help businesses leverage their data for generative AI in the data cloud. Applications.

By integrating NVIDIA NeMo with Snowflake, businesses can securely build custom large language models using their own proprietary data in the Snowflake Data Cloud. The partnership will help enterprises create groundbreaking new applications and services, which can be run from the cloud platform they use to run their businesses.

On May 28, WPP teamed up with NVDA to create a cutting-edge content engine for digital advertising that utilizes generative AI. The engine, built on NVIDIA AI and Omniverse, connects creative 3D and AI Tools from leading software makers to revolutionize brand content and experiences at scale.

The partnership aims to develop a content engine that harnesses NVIDIA Omniverse™ and AI to enable creative teams to produce high-quality commercial content more efficiently and at scale while ensuring the content aligns with a client’s brand.

Conversely, although NVDA is an indisputable market leader at the moment, driven by strong demand for its innovative product line and several strategic partnerships. But its near-term growth prospects are in question, as several players are looking to close the gap while they jump over the bandwagon.

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

Mixed Financials

For the first quarter of fiscal 2024, which ended April 30, 2023, NVDA’s revenues decreased 13.2% year-over-year to $7.19 billion. Its non-GAAP net income amounted to $2.71 billion and $1.09 per share, representing declines of 21.2% and 19.8%, respectively, from the prior year’s quarter.

However, the company’s cash, cash equivalents, and marketable securities came in at $15.32 billion, up 15.2% versus $13.29 billion as of January 29, 2023. Also, its free cash flow increased 96.1% year-over-year to $2.64 billion.

Stretched Valuation

In terms of forward non-GAAP P/E, NVDA is trading at 54.06x, 130.3% higher than the industry average of 23.48x. The stock’s forward EV/Sales of 24.24x is 714.8% higher than the industry average of 2.97x. Likewise, it’s forward EV/EBITDA multiple of 55.30 is 275.6% higher than the industry average of 14.72.

In addition, NVDA’s forward Price/Sales of 24.31x is considerably higher than the industry average of 2.91x. Its forward Price/Book multiple of 29.04 compares to the industry average of 4.43.

Favorable Analyst Estimates

Analysts expect NVDA’s revenue for the second quarter (ending July 31, 2023) to come in at $11.01 billion, indicating an increase of 64.22% year-over-year. The consensus EPS estimate of $2.06 for the current quarter reflects a 302.9% year-over-year improvement. Moreover, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.

Furthermore, analysts expect NVDA’s revenue and EPS for the fiscal year 2024 (ending January 2024) to increase 59.1% and 133.6% from the previous year to $42.91 billion and $7.80, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to grow 22.2% and 29.1% year-over-year to $52.41 billion and $10.07, respectively.

POWR Ratings Reflect Uncertainty

NVDA’s POWR Ratings reflect this mixed scenario. The stock has an overall C rating, equating to Neutral in our proprietary rating 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 an A grade for Sentiment, consistent with its optimistic analyst estimates.

In addition, the stock has a C grade for Growth, in sync with its mixed financial performance in the last reported quarter. On the other hand, NVDA is rated D for Stability, in sync with its five-year beta of 1.75.

The stock is ranked #45 out of 92 stocks in the Semiconductor & Wireless Chip industry. Click here to see NVDA’s additional ratings.

Bottom Line

NVDA has maintained a strong momentum despite the uncertain macroeconomic conditions based on its fundamental strength. As the leading chipmaker faces signs of market competition, it is exploring new ways to generate revenue through strategic partnerships and innovative new launches.

However, while the company is benefitting from the surging AI demand, given NVDA’s bleak bottom line growth in the first quarter and high valuation, it could be wise for investors to wait for a better entry point in this stock.

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

While NVDA has an overall POWR Ratings grade of C, equating to Neutral, one could also check out other stocks within the Semiconductor & Wireless Chip industry that are overall A (Strong Buy) rated: Infineon Technologies AG (IFNNY), Sumco Corporation (SUOPY), and Renesas Electronics Corporation (RNECF).

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NVDA shares were trading at $423.01 per share on Tuesday afternoon, up $1.21 (+0.29%). Year-to-date, NVDA has gained 189.53%, versus a 16.17% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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