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Semiconductors are the unsung heroes of our tech world, powering everything from smartphones to data centers. They’re the magic behind our gadgets, making communication and computing possible and driving innovation in our connected universe.
Yet, amid this technological boom, tensions are heating up. President Biden’s tough talk on semiconductor trade has stirred up a storm. Meanwhile, former President Trump’s comments about Taiwan have added fuel to the fire, stirring worries about the stability of crucial industry supplier Taiwan Semiconductor (TSM). Nvidia Corporation (NVDA), a key player in the chip industry, finds itself in the eye of the storm. Its heavy reliance on Chinese sales and Taiwanese production makes it particularly vulnerable.
As geopolitical tensions flare, investors have been skittish, leading to a recent sell-off in NVDA stock. Considering the stock’s impressive triple-digit surge so far in 2024, and with analysts predicting double-digit upside yet to come, could this pullback be the perfect chance to snag NVDA at a bargain? Let’s find out.
About Nvidia Stock
Santa Clara-based chip giant Nvidia Corporation (NVDA) leads the semiconductor industry with a market cap of $2.8 trillion. Renowned for its high-speed GPUs serving gaming, data centers, and automotive sectors, Nvidia has recently unveiled Project Groot for robots, updated its Isaac platform, and launched Jetson Thor, showcasing its artificial intelligence (AI) and robotics innovations. Plus, Nvidia dominates the AI chip and data center GPU markets with a 95% share, maintaining its leadership amid rising competition.
The chip stock was trading over $1,000 until a 10-for-1 stock split last month, which made its shares more accessible to retail traders. While the stock is now down 20.2% from June’s record high of $140.76, shares of Nvidia have still rallied a whopping 126.7% on a YTD basis - easily outperforming the S&P 500 Index’s ($SPX) 13.2% surge over the same time frame.
In Q1 2025, Nvidia returned $7.8 billion to its shareholders through repurchases and dividends. The chip giant, which boasts an 11-year streak of dividend payouts, has increased its dividend by 150% from $0.04 to $0.10 per share ($0.01, on a post-split basis), paid to its shareholders on June 28. With an annualized dividend of $0.04 per share and a modest 0.04% dividend yield, Nvidia maintains a conservative 0.94% payout ratio, underscoring the company’s focus on growth.
In terms of valuation, Nvidia stock trades at 48.75 times forward earnings - higher than the sector median of 23.86x, but lower than its own five-year average of 47x.
Nvidia’s Q1 Earnings Surge Past Wall Street’s Projections
Nvidia wowed Wall Street once again in Q1 2025, continuing its trend of smashing revenue and earnings expectations. The beat sent its shares soaring 9.3% on May 23. Q1 revenue of $26 billion was up by a remarkable 262% year over year, and beat estimates by 6%. Non-GAAP EPS soared 461.5% annually to $0.61, which also surpassed expectations.
Nvidia’s cornerstone business in data centers, encompassing AI chips and essential server components, surged 427% year over year to $22.6 billion, driven by robust shipments of its Hopper graphics processors, including the H100 GPU.
The company generated a staggering $15.34 billion in net cash from operations, a massive leap from $2.91 billion in the previous year's quarter. Plus, Nvidia closed the quarter with a hefty cash reserve of $31.44 billion, comfortably surpassing its debt levels. This robust financial health underscores Nvidia's dominant position in the market.
For the current quarter, set to be reported in late August, management expects $28 billion in revenue, indicating about 8% sequential growth. Non-GAAP gross margin is projected to be 75.5%, plus or minus 50 basis points, maintaining the mid-70% range for the full year.
Analysts tracking Nvidia predict its profit per share to surge by a whopping 114.4% to $2.53 in fiscal 2025, and then another 25.7% to $3.18 in fiscal 2026.
NVDA Sinks on Hawkish Trump/Biden Trade Talk
In recent headlines, President Joe Biden and former President Donald Trump threw microchip stocks into a tailspin earlier this month. On Wednesday, July 17, their comments on Taiwan and China sent shockwaves through the semiconductor sector, leading to its worst single-day performance in over four years. The PHLX Semiconductor Index plummeted 6.8%, dragging down not only NVDA but also other chip giants like Applied Materials (AMAT) and Advanced Micro Devices (AMD).
President Biden’s proposed chip crackdown on China stirred waves in the tech world, particularly impacting Nvidia. Bloomberg reported that the U.S. is contemplating harsh trade restrictions, including the foreign direct product rule (FDPR), to limit China’s access to advanced semiconductor tech. This rule could target foreign firms like Tokyo Electron (TOELY) and ASML Holding (ASML), which manufacture equipment crucial for chipmaking.
Separately, Donald Trump’s recent comments suggesting Taiwan should pay the U.S. for defense also stirred up concerns for Nvidia investors. The chipmaker relies heavily on Taiwan’s TSMC to manufacture its cutting-edge AI processors. With geopolitical tensions rising, the security of TSMC’s operations is crucial. Trump’s remarks, combined with potential tighter U.S. export controls, are both potential risks to Nvidia’s supply chain.
However, NVDA started this week on a stronger footing, as investors reacted positively to reports that the chip designer is working on a high-performance GPU tailored specifically to the Chinese market.
What Do Analysts Expect for Nvidia Stock?
Amid last week’s knee-jerk chaos, Mizuho Securities analyst Jordan Klein urged chip investors to remain calm. He remarked, “My personal take is not to freak out and start indiscriminately selling semis with reckless abandon. A pullback and risk-off trade into July earnings season IS GOOD IN MY VIEW to lower expectations and very elevated and euphoric investor positioning/sentiment in the semi sector.”
On July 22, Piper Sandler raised its NVDA price target from $120 to $140, keeping an "Overweight" rating. The analyst expectsr Nvidia's July earnings to beat expectations, with the upcoming Blackwell architecture launch expected to drive new growth into the October quarter. Strong demand from cloud service providers, enterprises, and sovereign entities is predicted to outpace supply, with the firm predicting that Nvidia could potentially exceed July quarter revenue expectations by $2 billion.
Elsewhere, Loop Capital also upped its price target on NVDA stock to $175 from the previous $120, while keeping a "Buy" rating. The price target is based on Loop’s forward EPS multiple of 29-33x for fiscal 2026.
In other words, analysts continue to remain overwhelmingly upbeat about Nvidia, and view the recent pullback as healthy. The stock has a consensus “Strong Buy” rating overall. Out of the 39 analysts covering the stock, 33 recommend a “Strong Buy,” two advise a “Moderate Buy,” and the remaining four analysts are playing it safe with a “Hold” rating.
The mean price target of $139.91 suggests an upside potential of 24.6% from the current price levels. The Street-high target price of $200 for Nvidia implies the stock could rally as much as 78%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
