Bank of America analyst Vivek Arya suggests that Nvidia’s stock may experience a significant pullback, possibly up to 11%, following its upcoming earnings report, driven by over-bullish sentiments rather than underlying fundamentals. Despite this anticipated volatility, Arya maintains Nvidia as a top pick, highlighting the upcoming GPU Tech Conference as a catalyst for stock appreciation.
Nvidia, the semiconductor giant, faces the prospect of a notable pullback in its stock price, potentially up to 11%, following its upcoming earnings report, according to Bank of America analyst Vivek Arya. Despite Nvidia’s meteoric rise in market valuations, Arya suggests that the current bullish sentiments among investors could lead to a brief period of volatility, overshadowing the firm’s solid fundamentals.
Investor expectations for Nvidia’s earnings, slated for February 21, have soared, with buy-side estimates standing 9% above consensus at $21.7 billion for the fourth quarter. This heightened optimism reduces the likelihood of Nvidia surpassing expectations, leaving the stock susceptible to a significant post-earnings decline, as indicated by Bloomberg options data. With the stock trading around $740 as of Friday afternoon, a pullback appears imminent.
However, Arya emphasizes that any downturn would likely be short-lived and driven by over-bullishness rather than fundamental weaknesses. He attributes potential shortcomings in meeting bullish estimates to supply-side factors rather than shifts in demand or increased competition.
Looking ahead, Arya anticipates a resolution of volatility following Nvidia’s upcoming GPU Tech Conference scheduled for mid-March. Historically, the stock has experienced positive performance in the days following previous GTC events, suggesting a potential boost in investor confidence and stock price appreciation.
Despite the possibility of a pullback, Nvidia remains a compelling investment opportunity, with its valuation at 35 times its price-to-earnings ratio, below its historical median. The company’s remarkable surge in share price, fueled by its technological advancements in artificial intelligence, has propelled it to become the third most valued firm on the S&P 500, surpassing giants like Amazon and Alphabet.
Arya acknowledges the mix of fear and greed driving Nvidia’s ascent but underscores the company’s solid execution and earnings per share revisions. Additionally, Nvidia’s strategic alignment with US mandates to restrict chip shipments to China further reinforces its market position and revenue potential.
While uncertainties loom regarding Nvidia’s short-term performance, Wall Street’s affection for the chipmaker remains evident, with prominent investors like Ray Dalio, Paul Tudor Jones, and Stanley Druckenmiller increasing their exposure to the company.
