Popular chipmaker NVIDIA Corporation (NVDA) received restrictions on exports of two of its top chips to China. However, Chief Executive Jensen Huang still expects a large market for its data center chips in China. But the export regulation of its A100 and H100 chips could affect up to $400 million in sales in its current fiscal quarter.

Moreover, famed investor Jim Cramer, who had been a strong proponent of NVDA for a long time, has recently turned bearish on the company’s stock following its Ethereum venture.

He stated, “They haven’t been able to make the transition yet to artificial intelligence, virtual reality, machine learning. We’re just not there yet. So, we have the high-tech stuff not there yet producing earnings and the lower stuff being hurt by this Ethereum transfer.”

The stock has declined 44.6% over the past year and 58.4% year-to-date to close its last trading session at $122.28. It is down 21.5% over the past month.

Here are the factors that could affect NVDA’s performance in the near term:

Bleak Bottom Line

For the fiscal second quarter that ended July 31, NVDA’s revenue increased 3% year-over-year to $6.70 billion. However, non-GAAP net income decreased 50.7% from the prior-year quarter to $1.29 billion. Non-GAAP net income per share declined 51% from the same period the prior year to $0.51.

Stretched Valuations

In terms of its forward EV/Sales, NVDA is trading at 11.30x, 375.5% higher than the industry average of 2.38x. The stock’s forward EV/EBITDA multiple of 49.12 is 322.1% higher than the industry average of 11.64. In terms of its forward Price/Sales, NVDA is trading at 11.49x, 368.1% higher than the industry average of 2.46x.

Unfavorable Analyst Expectations

The consensus EPS estimates of $0.71 and $0.79 for the quarters ending October 2022 and January 2023 indicate 39.3% and 40.2% year-over-year decreases. Street EPS estimate for the current fiscal year (ending in 2023) of $3.37 reflects a decline of 24.1% from the prior year.

The consensus revenue of $6.21 billion for the quarter ending January 2023 indicates an 18.7% year-over-year decline.

POWR Ratings Reflect Bleak Prospects

NVDA’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

NVDA has a Growth and Value grade of D in sync with its bleak bottom line growth and high valuations. The stock has a Stability grade of D, consistent with its five-year monthly beta of 1.69.

In the 92-stock Semiconductor & Wireless Chip industry, it is ranked #77.

Click here to see the additional POWR Ratings for NVDA (Momentum, Sentiment, and Quality).

View all the top stocks in the Semiconductor & Wireless Chip industry here.

Bottom Line

The export regulations on NVDA’s fastest chips could hurt the company’s top line. Moreover, its bottom-line decline in the last reported quarter is concerning. With analysts bearish on the company’s prospects, its stock might be best avoided.

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

While NVDA has an overall POWR Rating of D, one might consider looking at its industry peers, STMicroelectronics N.V. (STM) and Advantest Corporation (ATEYY), which have an overall A (Strong Buy) rating, and United Microelectronics Corporation (UMC) and MaxLinear, Inc. (MXL), which have an overall B (Buy) rating.

NVDA shares were trading at $123.42 per share on Tuesday afternoon, up $1.14 (+0.93%). Year-to-date, NVDA has declined -58.01%, versus a -22.93% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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