Nvidia (NVDA) chips power a future of self-driving electric cars and cryptocurrencies. NVDA is a giant in data centers and gaming, but challenges continue to mount. Is Nvidia stock a buy in October 2022?
XNvidia Stock News
Electric cars use far more chips than traditional gas and diesel cars. Nvidia sees opportunity in electric vehicles (EVs) and autonomous vehicles (AVs), the latter also called self-driving or driverless cars. In a blog post Oct. 13, the chipmaker highlighted that three new Nio (NIO) EVs for Europe, including Nio's Model 3 rival ET5, all use four Nvidia Drive Orin systems-on-a-chip to deliver high-tech features, which will eventually include automated driving on highways.
On Sept. 23, Nvidia introduced new graphics processing units or GPUs for gamers and content creators: the GeForce RTX 40 Series.
On Aug. 24, the chip giant guided lower after matching reduced targets for its fiscal second quarter.
In July, Congress passed the Chips for America Act, providing more than $50 billion in subsidies for U.S. chipmakers. The legislation may benefit chipmakers more than chip designers, like Nvidia.
Nvidia's core gaming and data-center markets are both a source of worry now. Chipmakers broadly face several challenges, from rising inflation to the Russia-Ukraine war to Covid lockdowns in China. The U.S. government's recent trade restrictions with China are the latest headache.
For those looking for top large-cap stocks to buy now, here's a deep dive into NVDA stock.
Nvidia Stock Technical Analysis
Shares of Nvidia edged down 0.1% to 118.72 Oct. 18, trying to clear the 21-day moving average. Nvidia stock sits far below the 50- and 200-day averages, with a long road to recovery ahead. NVDA stock is more than 65% off its 52-week high and its relative strength line shows serious lag.
NVDA earns a IBD Composite Rating of 31. In other words, Nvidia stock has outperformed just 31% of all other stocks in IBD's data in terms of combined technical and fundamental metrics.
Investors generally should focus on stocks with Comp Ratings of 90 or even 95 and above. While it's struggling now, chip stock NVDA can often be found on the IBD Leaderboard, IBD 50, Big Cap 20 and Sector Leaders lists.
The relative strength line for NVDA stock has plunged in 2022. That strength indicator rallied for much of the previous three years, IBD MarketSmith charts show. A rising RS line shows that a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.
The Accumulation/Distribution Rating is a D-, a sign of considerable selling by institutions over the past 13 weeks. As of September, 5,420 funds owned NVDA shares. Nvidia shows zero quarters of rising fund ownership, the IBD Stock Checkup tool shows.
Nvidia stock carries an RS Rating of 13, meaning it has outperformed just 13% of all stocks over the past year. The iShares PHLX Semiconductor ETF (SOXX) holds both Nvidia and AMD stock.
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Nvidia Earnings
In its fiscal second quarter ended July, Nvidia earnings plunged 51% while sales rose 3%. The company's data center revenue rose 61% from a year ago. Gaming revenue fell 33%.
"We are navigating our supply chain transitions in a challenging macro environment and we will get through this," Chief Executive Jensen Huang said in a news release.
NVDA guided much lower than views for the third quarter. It is likely to report for Q3 on Nov. 17.
For fiscal 2023, analysts expect EPS to tumble 24% on 0.8% revenue growth, according to FactSet. That's far below the scorching pace of growth seen in 2021 and 2022. Both earnings and revenue are seen rebounding by double digits in 2024.
Nvidia Stock EPS, SMR Ratings
Nvidia's EPS Rating is 83 out of 99 and its SMR Rating is a B, on a scale of A to a worst E. The EPS rating compares a company's earnings growth to other stocks. Its SMR Rating gauges sales growth, profit margins and return on equity.
Out of 44 analysts covering NVDA stock, 32 rate it a buy. Eleven have a hold and one has a sell, according to FactSet.
The pandemic fueled demand for Nvidia chips in home computing, video games and data centers.
The chip shortage hit automakers especially hard. Nvidia makes chips for car infotainment and autonomous driving systems.
As cloud gaming grows around the world, Nvidia's new cloud gaming service could become a growth driver. Rival services include Microsoft Xbox Network and Amazon Luna.
Nvidia designs dedicated chips for mining cryptocurrencies. Its cryptocurrency mining processors, or CMPs, launched in February 2021.
In February 2022, Nvidia ended its $40 billion Arm takeover bid because of regulatory challenges.
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NVDA Stock Basics
The fabless chipmaker pioneered graphics processing units, or GPUs, to make video games more realistic. It's expanding in AI chips, used in supercomputers, data centers, drug development and driverless cars.
For example, Nvidia supplies the chip that acts as the "brain" for the Nio (NIO) ET5 and ET7, Nio's new, highly advanced electric sedans. It also supplies chips to several other EV makers. In addition, Nvidia supplies Amazon (AMZN) Web Services with chips for data centers.
Nvidia's GPUs act as accelerators for central processing units, or CPUs, made by other companies. In April 2021, Nvidia unveiled its first CPU, called Grace, which uses chip designs from U.K.-based Arm for high-end computing.
With its own CPU, Nvidia will offer a more complete system for data centers, directly challenging processor giants Intel (INTC) and Advanced Micro Devices (AMD).
In addition, Nvidia chips are used for Bitcoin mining.
Nvidia's Omniverse: 'Plumbing' For Metaverses
Nvidia has made a big push into metaverse applications. Meta Platforms (FB) (formerly Facebook) and Microsoft (MSFT) see a big future in immersive virtual reality.
In March 2022, Nvidia announced Omniverse Cloud, a suite of services that gives artists, creators, designers and developers instant access to the nascent Nvidia Omniverse platform. While other companies, including Meta, are focusing on video games, entertainment and casual meetups, Nvidia is targeting business applications for the metaverse.
Nvidia's chips and computing power are key to the emerging metaverse. Many companies will build the metaverse, analysts say, but most of the revenues will come from companies providing the infrastructure — such as NVDA.
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Rival Chip Stocks
Nvidia and AMD are established leaders in the semiconductor industry.
Among top chip stocks, Nvidia helps to lead IBD's Electronics-Semiconductor Fabless industry group. Fabless companies contract with foundries to make the chips they design. Other chip companies own their fabrication plants.
Besides NVDA, fabless chip stocks include Qualcomm, Broadcom (AVGO) and Monolithic Power Systems (MPWR). Amid industry headwinds, the fabless group ranks No. 183 out of 197 industry groups.
For the best returns, investors should focus on companies that are leading the market and their own industry group.
Is Nvidia Stock A Buy In October 2022?
On a fundamental level, Nvidia earnings and sales are expected to come under severe pressure for the next couple of quarters, before a return to growth.
The chipmaker is expanding in growth areas, such as data centers, automated electric cars, and cloud gaming. The adoption of metaverses and cryptocurrencies could further stoke demand for Nvidia chips.
Meanwhile, new gaming chips underscore Nvidia's continued dominance in core markets. However, challenges from rate hikes and economic uncertainty are growing. New U.S. trade restrictions on China and Russia's Ukraine invasion are other worries, weighing on demand for PCs and gaming cards.
NVDA's semiconductor group is also lagging. While NVDA is a proven top chip stock, it remains under key technical levels after a big tumble year to date. It has far to recover before a new base or buy point can emerge.
Bottom line: Nvidia stock is not a buy in October 2022. As a leading chip stock with exposure to top end markets in data centers and gaming, Nvidia is always one to watch.
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