NVDA stock has lost a third of its value, which is good news if you're thinking of buying some
Nvidia (NASDAQ:NVDA) is in a bear market, with NVDA stock down nearly 33% from its all-time high. Meanwhile, the Nasdaq is in correction territory, down 15% since topping out on Nov. 22. I'm sure some investors are wondering whether Nvidia's trading action is a sign that tech stocks are about to enter an extended bear market.
It is too early to tell. But as far as what that means for NVDA stock, the answer is, probably not much.
The latest Moody's report suggests that the Gross Domestic Product (GDP) in the US will grow by 4.4% in 2022. That's 100 basis points lower than a year ago, but still a solid amount of growth.
Until the economy is completely derailed, Nvidia is all set to benefit from the secular trends that continue to accelerate around the world.
Buy NVDA Stock on Deepa
NVDA stock is down 20.5% for the year. The VanEck Vector Semiconductor ETF (NASDAQ:SMH) -- of which Nvidia is the second largest with a 9.5% weighting -- is down 12% year to date. And Invesco QQQ Trust (NASDAQ:QQQ), which is a good proxy for tech stocks, is up 11.6% in the hole.
NVDA stock is approaching the level of $ 230. Last time it was below this in late October. So it hasn't been that long that it's trading at current levels. If the shares were trading at $150, it would be a different story. In other words, they have a long way to go before the alarm bells go off.
Chris McDonald of InvestorPlace discusses the recent beatdown major tech stocks received. McDonald's suggested that rising interest rates may cause investors to reshuffle their portfolios, worried that higher rates will translate into slower economic growth, which affects tech stocks as a whole as money moves to safer places. goes.
However, he also pointed out that many of these biggest tech stocks are still near all-time highs. Nvidia is not in that boat. Since NVDA stock hit an all-time high of $346.47 on November 22, shares have lost a third of their value.
In many ways, though, this two-month correction could be the best thing for NVDA stock. The worry wall has been somewhat relieved by premium valuations, allowing stocks to prepare for their next leg.
Can Shares Reach $400 in 2022?
Nvidia reported its fiscal third-quarter results on Nov. 17. The company saw record revenue from its gaming segment of $3.22 billion, up 5% from the previous quarter and up 42% from a year ago. Revenue from data centers, its second largest market platform by revenue, rose to $2.94 billion, up 24% sequentially and 55% year over year. Those two platforms accounted for 87% of the $7.1 billion in total revenue in the third quarter.
CEO Jensen Huang, who I consider to be one of America's best CEOs, summed up the future as follows:
Omniverse was a major theme at [GPU Technology Conference]. We showed what is possible when we can jump into virtual worlds. Omniverse will be used from collaborative design, customer service avatars and video conferencing, to digital twins of factories, processing plants, even entire cities. Omniverse brings together NVIDIA’s expertise in AI, simulation, graphics and computing infrastructure. This is the tip of the iceberg of what’s to come.
When you consider that Nvidia's free cash flow (FCF) for the nine months ended October 31 was $5.3 billion, up 83% from a year ago, the sky's the limit for the stock's valuation. Assuming full-year FCF of $7.1 billion [$5.3 billion divided by three and then multiplied by four] and $26.7 billion in revenue, Nvidia's FCF margin is 27.2%.
That compares to 34.3% for Microsoft (NASDAQ:MSFT), a company with a $2.27 trillion market cap. Microsoft's FCF yield is 2.7%. Nvidia is 1.2%. However, Nvidia is growing its revenue and FCF at a slightly faster pace.
Assuming that business remains brisk in 2022, the combination of multiple expansions and higher numbers will help justify a share price in the $400 ballpark for NVDA stock. This is 70 percent more than the current price. But everything has to unfold like clockwork.
The Bottom Line on NVDA Stock
The stock is not expected to perform as well in 2022 as last year. This is going to act as a headwind. Rising interest rates will also play a role in holding back share prices. Finally, the S&P 500 has more than doubled in the past five years. At some point, it has to breathe.
That said, Nvidia is one of the most well-run companies in America. So if 2022 is anything to go by, NVDA should be the stock.