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In One Chart - November 28, 2018

In One Chart: The Rise, Fall and Future of NVIDIA

NVIDIA Corp (NVDA) is an industry leading designer of graphics chips with a variety of applications including data centers, automotive, gaming, and cryptocurrency mining.

In recent years, NVIDIA has gained notoriety due in part to its consistently impressive returns. Stock in the company posted a 223.8% gain in 2016, 81.3% gain in 2017, and a 45.2% gain in the first three quarters of 2018; however, 2018 Q4 has seen a startling 46.6% drop in share price.

During their last earnings announcement, NVIDIA provided pessimistic guidance for their consumer graphics processing units (GPUs) division. GPUs are hardware used to mine cryptocurrencies like Bitcoin and Ethereum. When Bitcoin, the largest crypto by market cap, reached prices in excess of $19,000 in December 2017, NVIDIA’s GPUs were in high demand. Today, Bitcoin is trading at sub-$4,000 levels, making expensive GPUs, and crypto mining in general, markedly less attractive to consumers.

All this being said, and even with NVIDIA’s price being cut nearly in half, analysts’ price targets indicate significant upside.

In the chart below, you can see NVIDIA’s total return price (blue) has a significant, while slightly delayed reaction to Bitcoin’s recent demise (red). Consensus price target (orange) points to a nearly 47% upside.

When considering share price reduction and other, growing revenue streams, many analysts covering NVIDIA believe there’s a compelling case to be made for buying.

Credit Suisse initiated coverage of NVIDIA with a BUY rating and a $225 price target which contributed to a slight rebound in share price. John Pitzer, global head of technology research at Credit Suisse, points to rapidly growing gaming and data center businesses as reasons to be optimistic about NVIDIA in the long-term.

These revenue streams, as well partnerships with the likes of Tesla (TLSA), Mercedes, and Toyota (TM) in their automotive division, are the company’s three fastest growing lines and are insulated from setbacks in NVIDIA’s crypto business.

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