Should I buy Nvidia shares after the first-quarter earnings results?

By: Stanko Iliev
Stanko Iliev
Stanko is a Financial Analyst for Invezz covering stocks, cryptocurrencies, and worldwide indices. He has significant experience trading forex,… read more.
on May 28, 2022
  • Nvidia reported strong first-quarter results
  • Total revenue has increased by 46.3% Y/Y
  • Morgan Stanley and Citigroup expressed some worries

Nvidia Corporation (NASDAQ: NVDA) reported better than expected first-quarter results this Wednesday, and the company’s shares advanced more than 15% on a weekly basis.

The company’s management updated financial guidance for the second fiscal quarter and announced the decision to increase the share repurchase program.

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Morgan Stanley and Citigroup expressed some worries

Nvidia Corporation reported better than expected first-quarter results this Wednesday; total revenue has increased by 46.3% Y/Y to $8.28 billion, while the non-GAAP earnings per share were $1.36 (beats by $0.07).

Gaming revenue of $3.6 billion rose 6% sequentially and 31% year-on-year, while Data Center revenue of $3.8 billion grew 15% sequentially and accelerated to 83% growth year-on-year.

Total revenue of $8.28 billion was a record, and Chief Executive Jensen Huang said there doesn’t appear to be any slowdown in the company’s gaming segment.

Morgan Stanley and Citigroup expressed worries that the record results seen in the first quarter could be a peak but Chief Executive of Nvidia, Jensen Huang, said that the strong trends in gaming are expected to stay in the second half of the year despite the war in Ukraine and Covid-related lockdowns in China.

Atif Malik, an analyst from Citigroup, lowered his price target on Nvidia stock to $315 from $350, while Morgan Stanley analyst Joseph Moore lowered his price target to $182 from $217. Joseph Moore, an analyst from Morgan Stanley, added:

Although the company’s data center business is strong, a “correction” in the gaming business is all but assured due to weaker PC gaming software and slower Ethereum mining.

Nvidia expects second-quarter revenue to be $8.1 billion, which is still below the $8.44 billion that analysts were expecting. It is important to say that this projection includes an estimated reduction of approximately $500 million relating to Russia and the COVID lockdowns in China.

According to the company’s management, GAAP gross margin in the second fiscal quarter should be around 65.1%, while GAAP operating expenses should be approximately $2.46 billion.

Positive information is that the company’s management increased and extended the share repurchase program to repurchase an additional common stock up to a total of $15 billion through December 2023.

Nvidia is in a good position to grow its business, but with a $425 billion market capitalization, this company is not undervalued, and the risk/reward ratio is not good enough for “value” investors currently.

Nvidia trades at more than thirty times TTM EBITDA, the book value per share stands at $10, and if the U.S. stock market enters a more significant correction phase, the share price could be at much lower levels.

$150 represents a strong support level

Data source: tradingview.com

The strong support level stands at $150, while $200 represents the first resistance level. If the price falls below $150, it would be a “sell” signal, and we have the open way to $130 or even below.

On the other side, if the price jumps above $200, the next target could be at $220.

Summary

Nvidia Corporation reported better than expected first-quarter results, and the company’s management announced a decision to increase the share repurchase program. Morgan Stanley and Citigroup expressed worries that the record results seen in the first quarter could be a peak, and they lowered their price target on shares of Nvidia.

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