Nvidia’s (NASDAQ:NVDA) recent beat-and-raise might have looked strong on paper, but it wasn’t enough to ignite investor enthusiasm. However, considering the shares are up by 141% since the turn of the year, it’s worth keeping some perspective here.
Benchmark’s Cody Acree, a 5-star analyst rated in the top 2% of the Street’s stock pros, pointed out that “nothing except the most aggressive beat and raise was likely to keep the market from rabid profit taking.”
Nvidia’s results were strong on most metrics, with its Data Center business showing impressive 154% year-over-year growth and the company noting that demand for its Hopper and Blackwell products is “handily outstripping supply well into next year.” The problem, says Acree, is that the company appears to be the victim of a “’law of large numbers’ scenario.”
That is, each successive growth milestone becomes “more difficult to top.” This is evident in the slowdown of their percentage guidance surprises, which have decelerated to levels not seen since October 2022, when the company reported a far more modest $5.8 billion in sales. Now, the company’s revenue forecast for the October quarter predicts sales of $32.5 billion, but that represents only a 2.5% or approximately $800 million beat vs. Wall Street estimates. This is in stark contrast to the past six quarters, where guidance exceeded consensus by 5-20%, or $1.3-$2.3 billion per quarter.
“While the decelerating pace is noteworthy,” the 5-star analyst goes on to say on the issue, “we believe NVDA’s negative share reaction is as much driven by a complacent & antsy investor base, looking for any reason to book profits, rather than an indication of a fundamental problem.”
On the one hand, given the current economic uncertainty and the volatile political environment, Acree says he understands investors’ “knee-jerk reaction to sell first and ask questions later.” However, his advice is to keep the big picture in mind, and recognize Nvidia for “the company that it has become, as the unquestioned leader of the most rapidly growing technological development in the history of any market.”
To this end, Acree rates NVDA shares a Buy along with a $170 price target, suggesting the stock will appreciate by 42% over the next 12 months. (To watch Acree’s track record, click here)
The majority of Street analysts agree with Acree’s thesis. The ratings breakdown into 39 Buys vs. 4 Holds, all culminating in a Strong Buy consensus rating. Going by the $151.49 average target, a year from now, NVDA stock will be changing hands for a 27% premium. (See Nvidia stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
