Nvidia (NASDAQ:NVDA) stock, the darling of 2021’s market, has lost 44% of its value in 2022.
But it’s still not a cheap stock. At its June 23 price of $165/share, Nvidia’s market cap was $407 billion, on fiscal 2022 revenue of $27 billion. The price to earnings ratio was nearly 44. The dividend yields just .1%.
With a lot of good stocks like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) selling for a fraction of that, on a relative basis, it can be hard to see why analysts keep giving Nvidia love. But they do. None of the 31 following it at Tipranks want you to sell it, and all but four still have it on their buy lists.
Business is great, people are wonderful, but this stock stinks.
NVDA Stock: Relative Value Is Excessive
NVDA stock isn’t down because the business is broken. But it’s no longer able to dictate prices as it once did. For the first fiscal quarter pf 2023, reported on May 25, revenue of $8.3 billion was up 46% from a year earlier. But net income was down 15%, to $1.6 billion. Compared with the previous quarter it was down 46%.
Supply is starting to catch up with demand. People no longer want to mine Bitcoin, once a big market for Nvidia graphics processors. Prices for used Nvidia gaming cards are finally becoming affordable. The data center business, which is the center of Nvidia’s current success, is notoriously price sensitive.
Nvidia is looking for a new growth catalyst, and analysts expect the metaverse to deliver it. Nvidia has joined a Metaverse Standards Forum, alongside Microsoft and Meta Platforms (NASDAQ:META). Notably, Apple and Alphabet (NASDAQ:GOOGL) remain absent.
The whole idea of the metaverse remains controversial. The idea of working in a virtual environment is jarring. Sales of headsets, the essential client devices in this new environment, are slowing.
Given these headwinds, and the possibility of China overrunning Taiwan, where Nvidia CEO Jensen Huang was born and where Taiwan Semiconductor (NYSE:TSM) makes Nvidia chips, the relative value of Nvidia looks excessive.
The Machine Internet
It may surprise you, then, to know that I have only sold one-quarter of my own NVDA stock holdings.
Like the analysts, I’m trying to see across the chasm.
Clouds are still gearing up to provide machine learning and artificial intelligence. The cloud market is also continuing to grow. Public cloud revenue jumped 26% in the first quarter, led by basic infrastructure and platforms, where revenues were up nearly 40%. There are now over 300 cloud data centers in the development pipeline and older centers are going to need upgrades with new chips.
This is the Machine Internet. It’s not just about self-driving cars, although they’re part of it. It’s about industrial machines that schedule their own maintenance, lawn sprinklers that waste less water while keeping plants healthy, and devices that can keep your next heart attack from killing you.
All sorts of industrial, civic and personal infrastructure will be upgraded for this, as prices fall, software improves and data centers scale. Anything with an on-off switch can become intelligent, and Nvidia is at the center of this market.
The Bottom Line on NVDA Stock
Nvidia will never be a cheap stock. It may go nowhere for the rest of 2022.
But if you’re a young investor, in your 30s or 40s, this is a stock that needs to be in your portfolio. If you’re over 70 and need income, give it a pass.
Nvidia chips will design your future. They are going to change the way we live and work because the Machine Internet will deliver productivity at low cost.
Forget the metaverse. Forget Web3. It’s machine learning that will define the future, cutting costs and improving performance in everything it touches.
On the date of publication, Dana Blankenhorn held long positions in NVDA, AAPL, MSFT, GOOGL, and TSM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack.