Markets News & Opinions

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

  • 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.

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%.

Last modified: September 23, 2020 2:00 PM

Mark Emem

I cover business and the stock market for CCN. Currently based out of Nairobi, Kenya. Email | Twitter |