Nvidia’s Stock Setback: Short-lived Pause or Long-term Decline?

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Nvidia’s stock has recently experienced a slight setback after its impressive earnings report. However, industry analysts from Melius Research are confident that this pause in the stock’s upward trend will be short-lived.

In premarket trading on Tuesday, Nvidia shares saw a marginal decline of 0.2%, settling at $481.37. This decline comes after the stock reached highs above $500 in anticipation of the earnings report.

Ben Reitzes, a renowned analyst at Melius, holds a strong Buy rating for Nvidia and has set a target price of $750 for the stock. This target implies a significant upside of over 50% from its current level. Reitzes draws a parallel between Nvidia’s recent stock decline and Apple’s experience after 2009. In both cases, the market undervalued their services revenue alongside their hardware sales until later recognizing their true worth.

“We strongly believe that Nvidia is operating on an accelerated timeline compared to Apple, and it is already demonstrating the qualities that justify a sustainable multiple more aligned with its esteemed Magnificent 7 peer group,” expressed Reitzes in his research note.

Nvidia’s shares currently trade at approximately 23 times its projected earnings per share for 2024, and about 20 times its forecasted earnings for 2025. Consequently, when compared to industry peers such as Apple and Microsoft, Reitzes highlights that Nvidia is trading at a more favorable valuation.

Overall, despite the temporary setback, Melius Research remains exceptionally bullish on Nvidia’s future prospects, expecting its stock to make a robust recovery and outperform its competitors.

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Nvidia Continues to Gain Momentum in the Market

The market for Nvidia’s artificial-intelligence chips is currently focused on its sustainable growth rate, discounting an expected peak in sales over the coming year. However, industry experts believe that Nvidia’s networking and software revenue will soon demonstrate its potential for growth and margin expansion.

Unlike other companies, such as Apple, which may take years for investors to fully understand, Nvidia’s value is more readily apparent. As a result, Reitzes, a prominent Wall Street analyst, has set a target price that makes him one of Nvidia’s most optimistic supporters. While the average target price for the company is $667, according to FactSet, there are still some analysts who remain cautious about the chip maker’s future potential.

Dave Sekera, Chief U.S. Market Strategist at Morningstar, expressed uncertainty about Nvidia’s capacity for further gains despite applauding its recent results. In his research note, Sekera acknowledged that the stock is fully valued and Morningstar has set a fair value estimate of $480 for Nvidia. While the company’s long-term prospects look promising with revenue projected to increase from $27 billion to $120 billion by fiscal 2028, there are concerns about the overall demand for AI processors.

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