Why Nvidia Corporation (NVDA) Stock Won't Stay Above $100 A Share

The optimism around Nvidia may be overdone right now. Tread cautiously with Nvidia stock in 2017 at prices above $100.

NVIDIA (NASDAQ:NVDA) had an excellent 2016 surpassing $117 a share on the 27th of December. However, due to the end of year profit-taking or worrying trends that look to be on the cards in 2017, investors aggressively took profits at the back end of last year. At CES 2017, CEO Jen-Hsun Huang went through the company's achievements to date but also outlined where the company sees robust growth over the next few years. Autonomous cars, the video game market, and artificial intelligence are the prime areas that will drive this company forward.

In fact, the self-driving cars market looks particularly appealing to Nvidia investors, especially when you take note of the partnerships the company has already entered into. Nvidia finishes its fiscal year at the end of January, and earnings of $2.45 a share are expected on revenues of $6.84 billion. Margins (both operating & gross) continue to gain traction but the company's expected 2018 & 2019 average earnings growth is about 17%, which is much lower than this present fiscal year. Therefore, since growth stocks are usually priced to perfection, Nvidia will need to at least nail projections for its share price to keep climbing. I would be cautious getting long here since a lot of growth being priced into the stock already. Here are 3 worrying trends to back up my thesis.

Also Read: This Could Hurt Nvidia And AMD In 2017

Nvidia Is Not Diversified Enough To Become A True Growth Stock

This year the company is going to more than double its earnings, which is a feat Nvidia hasn't achieved for over a decade. Nvidia clearly wants to double down on its gaming business in order to increase market share. This is where bearish analysts have a problem with the company's earnings trajectory. For Nvidia to be a real proper growth stock, it just isn't diversified enough across multiple markets. The company used CES 2017 to announce the PC version of GE Force NOW which is a streaming service for dedicated video gamers. This endeavor is fraught with risk in my opinion for a number of reasons.

Steaming Gaming At Scale Will Be Hard To Pull Off

Firstly, the price seems very steep at $25 for 20 hours of play. This price point could, in fact, shrink the market which is not what Nvidia wants over time. Secondly, a sizeable chunk of company sales connected with the PC industry has to be a worry considering the lower trends of PC shipments we have been seeing over the past few years. Furthermore, streaming video games have to be so precise that a microsecond glitch could effect the user's game play. Moreover, the data centers on Nvidia's side along with the internet connection on the gamers side would have to be operating perfectly for GE Force NOW to work at top capacity. Not an easy feat in my opinion, which would make it a revenue source that would be difficult to scale. (Also See: Don't Buy NVIDIA Corporation (NVDA) Stock Just Yet)

AMD & Intel Will Come Roaring Back In The Data Center Chip Market In 2017

In this industry, it is rare to gain market share across multiple markets. In 2016 we definitely saw Nvidia gaining meaningful share in the gaming market which it predominantly took from AMD. However, AMD recently announced a new line of computer graphic cards which on the surface look very impressive and will look to regain lost market share from Nvidia in the data center machine learning segment. Although Data Center technology will continue to grow at breathtaking speeds going forward, I just don't see any strong competitive advantage for NVIDIA in this space which would keep competitors at bay. In fact, Intel and AMD are also coming out with their own high-end performance chips. This market is going to get extremely overcrowded in the near-term which won't do any favors for Nvidia's margins and revenue growth.

Investors Should Base An Investment Decision On Activity In The Self-Driving Space

With US stocks at all-time highs and with Nvidia trading with an earnings multiple of 52.9, I just think that the risk here on the downside is significant. Furthermore, although Nvidia has partnered with many car manufacturers, there is no guarantee that the company's technology will be used en masse in this area in the future. In fact, I don't see revenue coming from the self-driving division for at least two to three years. So, investors should in no way be basing an investment decision just on Nvidia's current partnerships. Again, I fail to see the long-term sustained competitive advantages in the automotive space, especially with so many tech companies (with far bigger research divisions) investing in this space at present.

Also Read: Citron Says Nvidia (NVDA) Stock Belongs At $90, Does It Really?


Nvidia stock had a fantastic 2016, but I just feel that there is too much growth priced into the stock to warrant meaningful future gains. The company, in my opinion, will just have too much strong competition in areas such as data centers and automotive, for its margins and earnings growth to continue. With stocks at all-time highs, caution is warranted at present.

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Comments on this article and NVDA stock

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Ron Deb
NVDA was a MotleyFool top pick of theirs and influence a large majority of investors. The semi-circuit is highly competitive with a over saturation of companies. I see company AMD with Vega with the newest in the field.They have dropped along with all technologies until Trump is sworn in.And not to mention the fact that a bunch of NVDA investor's have cashed in on some nice returns on investment. Time will tell. I wouldn't be surprised if INTC doesn't buy ADM. They have a history working together. Long on INTC & AMD.
1 reply
60% growth in the games market is hard to justify as a decrease in the "PC shipments" PC gaming is the market leader for AAA games. It will always remain ahead of consoles and as games become more complicated gamers are forced to upgrade. The stock price is this high because of AI and Deep Learning. Just as Microsoft with the use of DirectX owns gaming. Nvidia with the use of Cuda owns AI. Look at this chart https://en.wikipedia.org/wiki/Comparison...
Unless Intel and AMD are planning on making a Cuda driver they will be left out of the party. AI is not just self driving cars, it eventually will be everywhere. If you can guess how much the AI industry will be over the next ten years and see where the price of the stock is then you will see that people are betting on the ten year plan which Nvidia has the potential to be bigger then Google or Amazon.
3 1 reply
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Ron Deb
Self driving cars are a money pit that in reality will not come a reality. Mass transit of super trains and green buses are the future.
"Decline in PC shipments"... Whenever I see this mentioned I know the analyst/author does not understand the market. The old market PCs are dying, but ever more custom PCs are being sold and built. PC's that are not counted as "PC shipments". Hence why component sales keep increasing, but PC shipments are on decline because people know better than buy from OEM's these days.

The analysts do not have a clue in other words. Over the long term NVIDIA will keep growing. Short term risks exist, though. It might dip below $100 before starting another rally.
6 reply
And NVIDIA is very strong at laptops as well. There are more people on custom PC's than you'd think... Its a growing trend and can be seen all over YouTube as well. The margins are also very high there as the parts are expensive and the enthusiasts community has rather deep pockets. No offense but you have not seen the future gaming quite clearly if you keep overlooking the growing custom PC market. NVIDIA will once again beat the earnings, and many people like you will be left wondering how was it possible.
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Custom PC's?. I cannot for the life of me see the future of gaming on custom pc's.. and even if it does to some extent - it will only be enthusiasts. Laptops and mobile devices will take over eventually. Nvidia is in pole position as present with its high-end graphics offerings but the industry will turn...
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