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Even after its 40% share price stumble this year, Nvidia’s valuation looks expensive.
Sam Yeh/AFP via Getty Images
Nvidia, the most valuable U.S. semiconductor company, is in a big rut. This week, the chip maker cut its guidance versus analysts’ estimates for the third consecutive time over the past three months, blaming a softening economic environment and a sharp slowdown in demand for its gaming graphics cards.
While some investors are hopeful for a quick turnaround, I’m skeptical.
Nvidia
(ticker: NVDA) is facing multiple threats, including rising competition, an unsustainable pricing structure, and a potential crypto used-card glut that will be difficult to overcome.
On Wednesday, Nvidia gave a forecast for the October quarter that was significantly below expectations, projecting a revenue range with a midpoint of $5.9 billion, compared with the $6.9 billion consensus. The weak outlook came after Nvidia preannounced another miss earlier this month when it said it would report $6.7 billion in revenue for the July quarter, versus its $8.1 billion guidance in May.
Barron’s readers shouldn’t be surprised by Nvidia’s recent stumbles. In April, we cautioned investors about the company’s deteriorating fundamentals, citing rising gaming inventories at retailers, elevated pricing, and exposure to cryptocurrency mining—all risks that came to fruition. In the ensuing months, the vast majority of Wall Street analysts missed the air pocket in demand for Nvidia products, the shares tumbled, and it went from consistently growing revenue at 50% year-over-year rate to forecasting a 17% year-over-year revenue…
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