Stock Analysis

Analysts have Adjusted Down NVIDIA's (NASDAQ:NVDA) Expected Growth - Here is What That Means for The Stock's Pricing

  •  Updated
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Key takeaways:

  • NVIDIA is trading at a PE multiple that implies sustained future growth.
  • Analysts see the company growing in the future, but have revised down their estimates for 2023.
  • New growth avenues are opening up for data centers, and the CEO also expects more business in AI, self-driving, robotics etc.

NVIDIA Corporation (NASDAQ:NVDA) stock gained 22% in the week after the latest earnings. The stock is partly benefiting from a general market recovery, and it's a great time to review what investors find attractive in the fundamentals of the company.

Check out our latest analysis for NVIDIA

From the last report, we see that revenues came in 46% higher at $8.3b beating expectations, while earnings missed analyst forecasts by 14%, coming in at $0.64 per share.

NVIDIA seems to be experiencing headwinds (lower demand) in the crypto mining field. However, their data center and gaming segments are coming in strong. The company is still supply constrained - has more demand than it can ship, which means that their revenues and prices are expected to remain stable and grow in the future.

NVIDIA's CEO Jensen Huang also remarked that they are expecting to find growth in AI, graphics, Omniverse, self-driving and robotics.

The company has a token dividend of $0.16 per share, and along with the future $15b buyback program, is estimated to return some 3% of the total market cap to shareholders. Looking at the current returns, it seems that investors see a lot of future growth implied in the stock price. If this growth does not manifest, the valuation may decline.

In order to see what analysts expect from NVIDIA, we have aggregated their future projections in the chart below:

NasdaqGS:NVDA Earnings and Revenue Growth June 2nd 2022

NVIDIA's 42 analysts expect the company to grow revenue 50% to $44.6b in 2025. The company is also expected to increase profitability, with a forward net margin of 33%.

For 2023, the company is expected to have revenues of $33.9b - a solid 15% growth compared to the last 12 months. EPS is also expected to increase 9.5% to $4.14.

Unfortunately, in the lead-up to this report, the analysts were forecasting revenues of $34.8b and EPS of $4.47 in 2023. This shows that the growth expectations have decreased for the stock, and most of the gains we have seen during the week may be a market move rather than investors focusing on NVDA.

Pricing the Stock

Given the earnings expectations, we can now see what that means for the price which investors are paying for these earnings.

Currently, investors are paying 52 times the trailing 12 months earnings for the stock. If we factor in the future increase of earnings, and look at a 2025 forward PE, we will see that investors are paying 32.6x the expected forward earnings.

A large PE ratio indicates that investors expect high growth to continue for the stock, and it also means that they are prepared to take on the risk of future growth with the current price. While this increase in future earnings for NVDA can certainly materialize, being too far ahead may put investors in the position to hold the stock with a loss until it manages to deliver on earnings.

For reference, currently, the industry is priced at 22.3x while the US market is priced at 15.6x earnings. You can get a good sense of how this changes with time in our markets section!

When learning more about a stock, we can also consider the intrinsic value of the cash generating assets. Our  DCF model shows the stock to be trading around fair value. Keep in mind that this comes from a general model based on analysts' estimates for growth and some key assumptions, so it is best to take this information along with other indicators.

The Bottom Line

NVIDIA is going to keep growing, and retain a high margin. The company is still constrained by the supply of products it can ship, but this may start opening up in the future, since analysts have adjusted down the expectations and are now expecting less growth than before the latest earnings came out.

The current price of earnings necessitates an extended high-growth phase, and investors are bearing the risk of the high PE valuation for NVIDIA.

We don't want to rain on the parade too much, but we did also find 2 warning signs for NVIDIA that you need to be mindful of.

Valuation is complex, but we're helping make it simple.

Find out whether NVIDIA is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Goran Damchevski

Goran Damchevski

Goran is an Equity Analyst and Writer at Simply Wall St over 4 years of experience in financial analysis and company research. Personally, Goran has over 4 years of experience in financial analysis and company research, where he previously worked in a seed-stage startup as a capital markets research analyst and product lead and developed a financial data platform for equity investors. 

About NasdaqGS:NVDA


NVIDIA Corporation provides graphics, and compute and networking solutions in the United States, Taiwan, China, and internationally.

Exceptional growth potential with outstanding track record.