Nvidia CEO Jensen Huang.Sam Yeh/AFP/Getty Images
Nvidia’s stock could pull back as much as 11% after earnings, Bank of America’s Vivek Arya wrote.
But this volatility will be short-lived, mainly driven by over-bullishness and not fundamentals.
The upcoming GPU Tech Conference in mid-March will provide the stock with a boost.
Nvidia’s rapid ascendance in mega-cap valuations keeps it a top pick for Bank of America research analyst Vivek Arya — but the stock could be in for a significant pullback, he wrote on Thursday.
The chipmaker is set to report its earnings on February 21, and investors have not held back on bullish expectations. Buy-side estimates for Nvidia stand 9% above consensus, at $21.7 billion for the fourth quarter.
This dampens the potential for Nvidia to beat expectations, leaving the firm vulnerable to an 11% implied post-earnings move, Arya wrote, citing Bloomberg options. As of Friday afternoon, the stock stands at about $740.
Though the decline could be notable, it would also be brief, he wrote. Arya believes Nvidia’s failure to meet bullish estimates would come from supply-side factors, instead of more concerning shifts in demand and competition.
Meanwhile, volatility should resolve after Nvidia’s upcoming GPU Tech Conference, set for mid-March.
“As reference NVDA stock was on average 6% higher (vs. SPX up 1%) T+1 days following the last six annual GTC events,” Arya said.
Nvidia has remained a compelling stock, with its valuation at 35x its price-to-earnings ratio, below its median.
Shares of the semiconductor manufacturer have surged astronomically, helping the company eclipse Amazon and Alphabet to become the third most valued firm on the S&P 500. Through 2023 the stock has jumped 250%, as its technology has become a central component to the development of artificial intelligence.
“We think one interpretation of this NVDA move is a mix of fear and greed and indiscriminate investor chase for all things AI. We acknowledge those factors, but believe it understates the company’s solid execution and EPS revisions,” Arya wrote.
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