House Speaker Nancy Pelosi often discloses recent trades undertaken by her husband as a law makes it illegal for lawmakers to use information from their work in Congress for personal gain. The law requires lawmakers to disclose stock transactions by themselves or family members within 45 days.

In a new transparency filing, the senior Democrat disclosed that her husband, Paul Pelosi, sold chipmaker NVIDIA Corporation’s (NVDA - Get Rating) call options bought in July 2021 for a loss of $361,476.

The chip maker’s stock has declined 56.2% year-to-date and 47.8% over the past year, primarily due to the headwinds faced by the semiconductor industry.

NVDA has provided weak guidance for the third quarter of fiscal 2023. It expects revenues of $5.90 billion, plus or minus 2%, which means a nearly 12% sequential decrease.

The company faced a significant decline in its graphics segment business, which led to a fall in revenue and gross margins in the last reported quarter. Falling demand for GPUs and pricing power led to the segment reporting a 44% sequential drop. A slowdown in GPU sales has been due to a decline in cryptocurrency mining and falling PC demand that has affected GPU pricing.

In September, the company reported that the U.S. government had imposed new export restrictions on two of its most advanced AI chips, namely Nvidia A100 and H100 graphic processing units, to China. The latest tech sanctions are going to have an adverse effect on its revenue as China is its second-largest market. The revenue hit is expected to be $400 million in the current quarter.

According to a report, there could be a buffer period before the ban kicks in, which is why the company is pushing the production of the chips in question in order to sell them. This could help mitigate the revenue impact in the current quarter up to a certain extent.

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

Disappointing Financials

NVDA’s non-GAAP gross profit declined 29.1% year-over-year to $3.07 billion for the 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 decreased 51% year-over-year to $0.51.

Mixed Analyst Estimates

NVDA’s revenue for fiscal 2023 and fiscal 2024 is expected to increase 0.4% and 15.6% year-over-year to $27.03 billion and $31.24 billion. Its EPS for fiscal 2023 is expected to decline 24.3% year-over-year to $3.36. However, its EPS for fiscal 2024 is expected to increase 32.6% year-over-year to $4.46.

Stretched Valuation

In terms of forward EV/S, NVDA’s 12.02x is 350% higher than the 2.67x industry average. Likewise, its 11.88x forward P/S is 375.2% higher than the 2.50x industry average. Its 52.09x EV/EBITDA is 333.9% higher than the 12.01x industry average.

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 stretched valuation.

It has a D grade for Stability, consistent with its 1.71 beta.

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

Bottom Line

Pelosi’s bet on NVDA failed to result in gains as the stock lost on concerns over falling demand and inventory pileup of GPUs. The company expects its revenues to get hit in the upcoming quarters.

Given its disappointing financials and stretched valuation, it could be wise to avoid the 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) or B (Buy) rating, such as STMicroelectronics N.V. (STM - Get Rating), Xperi Holding Corporation (XPER - Get Rating), and United Microelectronics Corporation (UMC - Get Rating).

NVDA shares rose $6.59 (+5.11%) in premarket trading Thursday. Year-to-date, NVDA has declined -54.00%, versus a -18.51% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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