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Why Citron is Wrong About NVIDIA (NVDA) Stock in 2017
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Shares of NVIDIA Corporation (NVDA - Free Report) declined about 6.8% on Wednesday following a Twitter post by notorious short-seller Andrew Left, founder of Citron Research. He said that investors are overlooking six headwinds. The firm put the stock’s 12-month price target at $90.
Citron claims that the company is going to face a tough time in 2017, considering NVIDIA’s lack of progress in new markets, competition in the data center market, especially from Advanced Micro Devices, Inc. (AMD - Free Report) , Intel Corporation (INTC - Free Report) and Xilinx, Inc., and possible gross margin pressure due to a lack of manufacturing facilities.
Left and Citron have been right in the past, and their bets against GoPro and Valeant Pharmaceuticals certainly seem to have paid off. In case of NVIDIA, Left thinks that "There's [are] a lot of risks to this business going forward,” per CNBC reports.
Adding to the woes, NVIDIA’s remarkable run may not continue next year as the company is currently trading at a higher price/earnings (P/E) multiple than the industry average. So, we believe that NVIDIA with its hefty forward P/E valuation of 48.3x compared with the industry average of 34.7x may be a risky bet. Moreover, the stock currently carries a VGM Style Score of “D,” which makes us slightly skeptical about the stock’s future.
Left’s comments come off as a short-seller trying to make a quick blame on the company. Despite his claims that NVIDIA faces headwinds, the company remains one of the best performers in the semiconductor space, and is believed to start 2017 on a solid note with its specialized platforms for gaming, automotive, data center and professional visualization markets.
The stock has been clocking significant returns since the beginning of 2016 and has gained over 231.5% year to date (YTD), outperforming the Zacks Semiconductor General industry’s return of just about 34.6%.
Most recently, investment firm, Goldman Sachs upgraded NVIDIA to “conviction buy” from “buy”, pushing the target price to $129 from the previous $92, marking an increase of approximately 27%.
The robust performance is backed by its phenomenal results in back-to-back quarters. This has boosted investor confidence in the stock as many realized that the company is much larger than simply GPUs.
Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 24.9%. Over the past several quarters, NVIDIA has been witnessing significant top and bottom line growth on a year-over-year basis mainly driven by robust performance in three of its four major segments – gaming, data center and automotive.
Market Performance in 2016
It is worth mentioning that NVIDIA has outpaced the market in 2016 (especially S&P 500 and Technology Select Sector SPDR ETF). In the YTD period, S&P 500 (GSPC) gained10.08% whereas the Technology Select Sector SPDR ETF (XLK - Free Report) has returned 13.78%. Shares of NVIDIA have grown a whopping 231.46% YTD.
Launched in Dec 1998, XLK is a passively managed fund designed to deliver the returns of the U.S. technology stocks. The fund, before expenses, is expected to remain on par with the returns and characteristics of the S&P Technology Select Sector Index.
Estimate Revisions
Let’s not forget that the numbers support NVIDIA as a great stock pick right now too. The Zacks Consensus Estimate for fiscal 2017 increased to $2.43 from $1.86 over the last 60 days as all nine analysts revised their estimates upward.
Bottom Line
Widely known for its video gaming chips, NVIDIA has pioneered the art and science of visual computing. With a singular focus on this field, the company offers specialized platforms for the gaming, automotive, data center and professional visualization markets. Its products, services and software deliver amazing experiences in virtual reality, artificial intelligence and autonomous cars.
NVIDIA’s sustained efforts toward attaining robust position in several emerging industries such as artificial intelligence, deep learning and driverless cars industry make us optimistic about its growth prospects. The company’s focus on GRID platforms can increase GPU adoption in data centers, giving it an advantage against its competitors.
The stock has grabbed the spotlight with striking performances on the back of solid earnings results and strong growth projections. Keeping this in mind, we believe investing in this stock would yield strong returns for your portfolio in the short term.
With things mostly going in favor of NVIDIA, we believe that Andrew Left and Citron Research’s apprehensions about the company may not turn out to be true.
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Why Citron is Wrong About NVIDIA (NVDA) Stock in 2017
Shares of NVIDIA Corporation (NVDA - Free Report) declined about 6.8% on Wednesday following a Twitter post by notorious short-seller Andrew Left, founder of Citron Research. He said that investors are overlooking six headwinds. The firm put the stock’s 12-month price target at $90.
Citron claims that the company is going to face a tough time in 2017, considering NVIDIA’s lack of progress in new markets, competition in the data center market, especially from Advanced Micro Devices, Inc. (AMD - Free Report) , Intel Corporation (INTC - Free Report) and Xilinx, Inc., and possible gross margin pressure due to a lack of manufacturing facilities.
Left and Citron have been right in the past, and their bets against GoPro and Valeant Pharmaceuticals certainly seem to have paid off. In case of NVIDIA, Left thinks that "There's [are] a lot of risks to this business going forward,” per CNBC reports.
Adding to the woes, NVIDIA’s remarkable run may not continue next year as the company is currently trading at a higher price/earnings (P/E) multiple than the industry average. So, we believe that NVIDIA with its hefty forward P/E valuation of 48.3x compared with the industry average of 34.7x may be a risky bet. Moreover, the stock currently carries a VGM Style Score of “D,” which makes us slightly skeptical about the stock’s future.
Left’s comments come off as a short-seller trying to make a quick blame on the company. Despite his claims that NVIDIA faces headwinds, the company remains one of the best performers in the semiconductor space, and is believed to start 2017 on a solid note with its specialized platforms for gaming, automotive, data center and professional visualization markets.
The stock has been clocking significant returns since the beginning of 2016 and has gained over 231.5% year to date (YTD), outperforming the Zacks Semiconductor General industry’s return of just about 34.6%.
Most recently, investment firm, Goldman Sachs upgraded NVIDIA to “conviction buy” from “buy”, pushing the target price to $129 from the previous $92, marking an increase of approximately 27%.
The robust performance is backed by its phenomenal results in back-to-back quarters. This has boosted investor confidence in the stock as many realized that the company is much larger than simply GPUs.
Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 24.9%. Over the past several quarters, NVIDIA has been witnessing significant top and bottom line growth on a year-over-year basis mainly driven by robust performance in three of its four major segments – gaming, data center and automotive.
Market Performance in 2016
It is worth mentioning that NVIDIA has outpaced the market in 2016 (especially S&P 500 and Technology Select Sector SPDR ETF). In the YTD period, S&P 500 (GSPC) gained10.08% whereas the Technology Select Sector SPDR ETF (XLK - Free Report) has returned 13.78%. Shares of NVIDIA have grown a whopping 231.46% YTD.
Launched in Dec 1998, XLK is a passively managed fund designed to deliver the returns of the U.S. technology stocks. The fund, before expenses, is expected to remain on par with the returns and characteristics of the S&P Technology Select Sector Index.
Estimate Revisions
Let’s not forget that the numbers support NVIDIA as a great stock pick right now too. The Zacks Consensus Estimate for fiscal 2017 increased to $2.43 from $1.86 over the last 60 days as all nine analysts revised their estimates upward.
Bottom Line
Widely known for its video gaming chips, NVIDIA has pioneered the art and science of visual computing. With a singular focus on this field, the company offers specialized platforms for the gaming, automotive, data center and professional visualization markets. Its products, services and software deliver amazing experiences in virtual reality, artificial intelligence and autonomous cars.
NVIDIA’s sustained efforts toward attaining robust position in several emerging industries such as artificial intelligence, deep learning and driverless cars industry make us optimistic about its growth prospects. The company’s focus on GRID platforms can increase GPU adoption in data centers, giving it an advantage against its competitors.
The stock has grabbed the spotlight with striking performances on the back of solid earnings results and strong growth projections. Keeping this in mind, we believe investing in this stock would yield strong returns for your portfolio in the short term.
NVIDIA remains a Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
With things mostly going in favor of NVIDIA, we believe that Andrew Left and Citron Research’s apprehensions about the company may not turn out to be true.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>