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What's Ahead for Nvidia ETFs?

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Nvidia (NVDA - Free Report) , a major player in chipmaking, recorded a notable downturn in its stock value this week. It entered a "correction territory" on Apr 10, 2024, but closed the day at about 8% lower than the peak, per a CNBC article. However, the shares have jumped 4.1% on Apr 11, 2024.

Reasons Behind the Decline

The exact cause for the decline remains uncertain. However, ripe valuation can be a cause of concern. It's possible that investors are booking profits as Nvidia shares topped 200% gains over the past year. Additionally, the unveiling of a new AI chip by rival Intel, touted for its efficiency in powering large language models, could have contributed to the downward pressure, per the above-mentioned article.

Analyst Insights and Future Projections

Analysts at D.A. Davidson see a potential shift in the AI arena, with a forecasted reduction in demand for Nvidia's products over time. While anticipating strong performance from Nvidia in the near term, they express concerns about future prospects, citing factors such as diminishing model sizes, steady growth in demand, evolving investments by major players and increased reliance on proprietary chips by Nvidia's largest clients. This outlook hints at a looming cyclical downturn for Nvidia by 2026.

Pattern of Brokers’ Earnings Estimate Revisions

About 15 analysts covering the stock, 11 analysts upped earnings estimates for the April quarter over the last 60 days while four raised estimates over the past month. None made downward estimate revisions. The Zacks Consensus Estimate for earnings for the current quarter has been raised to $5.44 from $5.32.

Broker Rating

Nvidia currently has an average brokerage recommendation (ABR) of 1.20 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 40 brokerage firms. The current ABR compares to an ABR of 1.20 a month ago based on 40 recommendations.

Of the 40 recommendations deriving the current ABR, 35 are Strong Buy and two are Buy. Strong Buy and Buy, respectively, account for 87.5% and 5% of all recommendations. A month ago, Strong Buy made up 87.5%, while Buy represented 5%.

Nvidia currently has a Zacks Rank #1 (Strong Buy). The stock comes from a top-ranked Zacks sector (top 31%) and Zacks industry (top 10%).

Is Nvidia Overvalued?

The forward P/E ratio of the stock is 36.70, way higher than 24.57 recorded by the underlying industry. Price-sales ratio stands at 35.72, much higher than 2.56 delivered by the industry. Earnings yield of NVDA was 2.73% as of Apr 10, 2024, lower than the underlying industry’s figure of 3.78%. However, Nvidia is cash-rich. Its cash flow per share is $12.41, way above $4.94 recorded by the industry. This means the company has enough cash to invest in the future growth prospects.

Moderate Upside Ahead in Short-Term?

Based on short-term price targets offered by 38 analysts, the average price target for Nvidia comes to $914.75. The forecasts range from a low of $475.00 to a high of $1,200.00. The current price target is $906.16, as of Apr 11, 2024.

ETFs to Play

T-Rex 2X Long NVIDIA Daily Target ETF (NVDX - Free Report) seeks daily investment results, before fees and expenses, of 200% of the daily performance of NVDA. If you expect moderate returns from Nvidia in the short term, you can play a leveraged bet on it to maximize your return from that investment.

Otherwise, you can play broader semiconductor ETFs like Strive U.S. Semiconductor ETF (SHOC - Free Report) , AXS Esoterica NextG Economy ETF (WUGI - Free Report) and VanEck Semiconductor ETF (SMH - Free Report) . Nvidia has weightage in the range of 25% to 19% in these ETFs.


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