Morningstar Analysts Say Nvidia Stock is Highly Undervalued

Key Insights

• Nvidia stock has formed a descending channel in the past few weeks.
• Morningstar analysts believe that the company is highly undervalued.
• Valuation metrics show that the company is trading at a bargain.

Nvidia stock price ended the month at the important level of $200. Investors reflected on the recent big-tech earnings. NVDA has risen by over 5% from its lowest level this month. Morningstar analysts say the company is highly undervalued.

In a recent note, analysts at Morningstar maintained that NVDA was a highly undervalued stock. They noted that it had more upside to go. This statement came at a time when the stock has underperformed the broader financial market. It remains 15.2% below its highest point this year.

Morningstar believes that the company’s fair value is $280, much higher than where it is today. In justifying the call, the analysts pointed to its market share in the GPU industry. They also highlighted the role that CUDA software plays in the sector. CUDA is the software package that makes it possible for companies to transform normal GPUs for use in the data center industry.

The analysts also noted that companies, especially hyperscalers, were not slowing their spending. Google plans to spend over $205 billion on capital expenditure. In contrast, the other big ones like Microsoft, Meta Platforms, and Amazon said that they plan to spend billions of dollars.

Morningstar is not the only firm with a bullish outlook for the company. KeyCorp analysts believe that the stock’s fair value is at $330. On the other hand, China Renaissance has a target of $319. Needham, DA Davidson, and Tigress have targets of $270, $330, and $425, respectively.

A discounted free cash flow (DCF) calculation by Simply Wall St shows that the fair value of the company is $236. That’s higher than the current $200.

More valuation multiples show that the company is trading at a bargain price. Its forward price-to-earnings multiple on a non-GAAP basis is 22, slightly lower than the technology sector median of 23. On a GAAP basis, its forward PE ratio is 21, while the forward PEG ratio is just 0.050.

Ideally, Nvidia should have a higher valuation metric than other companies because of its performance. Its last earnings report shows that its revenue jumped by over 80% in the first quarter, while the profit margin is about 60%.

Wall Street analysts predict that the company’s earnings will continue growing. The average estimate is that the second-quarter revenue rose by 96.4% in the second quarter to $91.8 billion.

For the year, the expectation is that its annual revenue will jump by 82% this year to $393 billion. Its revenue will then jump to $560 billion next year. In the past, however, the company has done better than expected. This means that its real figure in 2027 will be over $600 billion.

Still, Nvidia faces some major challenges. Competition in the GPU industry continues to rise, with companies like Microsoft, Google, and OpenAI creating their own AI chips. There are concerns that the company is engaging in circular investments.

The daily chart shows that the NVDA stock price has formed a descending channel in the past few months. This channel is part of the formation of the bullish flag pattern, which is a common continuation sign.

The stock has also settled at the 200-day Exponential Moving Average (EMA). It’s a sign that the long-term uptrend is still intact. Nvidia stock will likely have a bullish breakout, potentially to the year-to-date high of $236.

This view will be confirmed if it moves above the upper side of the descending channel. On the other hand, a drop below the lower side of the channel will invalidate the bullish forecast.

The post Nvidia Stock Forecast as Top Analyst Says Firm is Highly Undervalued appeared first on The Market Periodical.