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Stock Analyst Update

Can Nvidia’s Winning Streak Continue?

Despite the aura of positivity surrounding the narrow-moat firm, we think recent growth will be challenging to replicate, and the shares are materially overvalued.

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 Nvida  (NVDA) once again exhibited outsize growth across its two high-profile segments: gaming and data center. While its third-quarter results were ahead of our expectations by a healthy margin, we note the market remains enamored with Nvidia’s opportunities in the artificial intelligence, or AI, and autonomous vehicle arenas. Management struck an upbeat tone when discussing the roll-out of its latest Volta architecture graphics processing units, or GPUs, for accelerating deep learning workloads and other high-performance computing applications. 

Despite the aura of positivity surrounding the firm, we think recent growth will be challenging to replicate as alternative solutions become more competitive with Nvidia’s bread-and-butter GPU offerings. Earlier this week, Intel and AMD announced a collaboration for a system on chip with a high-end Intel CPU and custom AMD GPU targeting the premium lightweight laptop market as a direct challenge to Nvidia. On Nov. 8, Intel hired prominent GPU architect Raja Koduri (formerly of AMD and Apple) to serve as its own GPU chief architect. We anticipate a bevy of firms targeting Nvidia in 2018 and beyond, across gaming, AI, self-driving cars, and other high-profile end markets. Consequently, we are maintaining our $90 fair value estimate for narrow-moat Nvidia. At current levels, we view shares as materially overvalued.

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Abhinav Davuluri does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.