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.
He also highlighted the firm’s alignment with US mandates to limit chip shipments to China. When these mandates were set in place in October, Nvidia redesigned some of its semiconductors with lower performance, making them permissible for Chinese markets. The country traditionally accounts for around a fifth of Nvidia’s revenue.
Whether a pullback is likely or not, Wall Street has made its love for Nvidia apparent. Firms run by billionaire investors have been increasing their exposure to the chipmaker, including those run by Ray Dalio, Paul Tudor Jones, and Stanley Druckenmiller.
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