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FAANG Wannabe Nvidia Is Bloated Despite Soaring Year – Wall Street Analyst

Last Updated September 23, 2020 2:00 PM
Mark Emem
Last Updated September 23, 2020 2:00 PM
  • Year-to-date, Nvidia has surged by over 50%, making it one of Nasdaq’s best performers so far in 2020.
  • Nvidia’s revenues increased sharply in the first quarter.
  • Among FAANG stocks only Amazon comes close to Nvidia’s performance.

The lockdown measures and the increased number of people working from home have benefited graphics chip maker Nvidia (NASDAQ: NVDA) immensely.

Last month Nvidia’s first-quarter revenues surged by 39% year-on-year . Datacenter revenues led the charge growing by 80% compared to a similar period a year earlier.

Analysts at Morgan Stanley were not impressed though. The Wall Street firm has downgraded the stock from “overweight” to “equal weight” .

Per Morgan Stanley, the stock has no room for more growth.

Said the investment bank:

The current multiple leaves little room for error.

Nvidia Is Too Expensive

Morgan Stanley cited Nvidia’s lofty valuation as a reason for the downgrade. Currently, Nvidia’s consensus forward price to earnings ratio  stands at 46.08, according to Morningstar. The five-year average forward PE is 31.83.

Nvidia’s forward price-to-earnings ratio is more than ten points above the five-year average | Source: Morningstar 

The Wall Street firm has set a price target of $380. This would be an increase of around 6% from the current levels .

The V-shaped economic recovery  that the Wall Street firm is expecting will further compound the valuation risk.

V-shaped economic recovery
Morgan Stanley has predicted a sharp economic recovery. | Source: Twitter 

A V-Shaped Recovery Is Supposedly Endangering Cloud Stocks

As economic activity around the world gradually returns to normal, such a sharp recovery is likely to result in the reduced data center and gaming revenues.

In the first quarter, data center revenues nearly doubled. Gaming revenues grew by 27% year-over-year. Nvidia’s graphics processing unit business is its fastest-growing segment. Revenues from the GPU unit are expected to be nearly 90% of all sales  in 2021.

Despite Morgan Stanley’s downgrade, Nvidia still maintains an “overweight” consensus rating among the 42 analysts  covering the stock. Only three analysts have issued a “sell” rating. Twenty-eight analysts have issued a “buy” recommendation.

The average stock price target is $381.20 with the highest is $430.

The majority of analysts have a BUY rating on Nvidia’s stock. | Source: WSJ 

Nvidia Beats FAANG Stocks Year-to-Date

Nvidia has been one of the best-performing stocks this year on the tech-heavy Nasdaq exchange. Earlier this month, the stock hit an all-time high of $380.

Nvidia is up by over 50% year-to-date, a far better performance than FAANG stocks. | Source: TradingView 

Year to date, the stock is up by about 53% enabling it to put on a better performance than the FAANG stocks.

Since the year started, Facebook (NASDAQ: FB) is up 12%, Amazon (NASDAQ: AMZN) 37%, Apple (NASDAQ: AAPL) 17%, Netflix (NASDAQ: NFLX) 31%, and Google (NASDAQ: GOOG) 5%.