Nvidia stock, which was anyways having a tough ride in 2022, fell to a new 52-week low on Friday, extending its YTD loss to over 50%. While other chipmakers have also fallen, the drawdown in Nvidia has been steeper, as unlike other chip stocks it is a growth name.
Growth stocks have crashed in 2022 as the US Federal Reserve embarked on one of its aggressive tightening cycles. It raised rates by 75 basis points in June and signaled a similar hike for July. Since 1994, the US central bank hadn’t raised rates by 75 basis points in one meeting. However, the current inflation, which is running at a multi-decade high, calls for unprecedented steps.
Micron issued a grim forecast for the tech industry. Sanjay Mehrotra, Micron’s CEO said in his prepared remarks, “Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023.”
Specifically, the company expects global PC sales to fall 10% and smartphone sales to fall 5% this year. The forecast was way below what the company had previously provided. However, the continued slowdown in the global economy prompted the company to tone down its projections.
Nvidia gets the bulk of its revenues from the data center and gaming market. In the fiscal first quarter of 2023, the segments posted record revenues and registered a YoY growth of 83% and 31% respectively. However, the company provided a weaker-than-expected forecast for the next quarter which led to a sell-off in other chip stocks also.
Nvidia Stock Falls to 52-Week Lows after Micron’s Warning
This time, it was Micron’s turn to trigger a sell-off in chip stocks. While Nvidia is not as impacted as some of the other chipmakers, the slowdown in PC sales would nonetheless have some impact on its earnings.
Notably, the global economic slowdown is a risk for Nvidia as it would lead to a slowdown in PC sales. While the sales of high-end devices that carry Nvidia’s GPUs might not be as impacted, sales of discretionary products, in general, are coming down. Also, the crypto sell-off is weighing heavy on the stock as demand for its products from the crypto mining industry has taken a hit. The crypto winter is far from over and the total cryptocurrency market has lost more than $2 trillion since the November peak.
That said, most analysts have a bullish view of Nvidia given the long-term growth story and its exposure to several high-growth industries like autonomous driving and metaverse.
Bank of America finds Nvidia Stock a Good Buy after the Crash
Last month, Bank of America issued a bullish note and said that it finds Nvidia stock a good undervalued stock to buy. The brokerage said that chipmakers’ stocks are already pricing a recession and Nvidia’s valuations look attractive after the crash. Analyst Vivek Arya assigned a target price of $270 on the stock.
He also said that Nvidia is serving several “resilient” industries like cloud computing, electric vehicles, and autonomous driving, which would help it survive a slowdown in gadget sales. The automotive industry’s chip demand has spiked over the last few years as electric and autonomous cars use more chips than traditional cars.
The global chip shortage has taken a toll on automotive production. In the second quarter, we also had lockdowns in China which led to a fall in Tesla’s production in the country and its quarterly deliveries fell after a gap of two years.
Notably, Bank of America believes that the S&P 500 would bottom in October. It is then predicting a 6-year-long bull market which it says would take the S&P 500 to 6,000 by 2028. However, in the near term, brokerages have been raising their odds of a US recession amid the Fed’s rate hikes.
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