Nvidia under Scrutiny: High Expectations and Cautious Analysts

The past month brought a correction in market indices, which also weighed on Nvidia's stock. Despite this setback, Nvidia remains among the top performers in the S&P 500 for this year, with an impressive price increase of 116 percent since the beginning of the year. However, with rising price levels, expectations for the upcoming second-quarter earnings report on August 28 are also increasing. Analysts on Wall Street are extremely optimistic about Nvidia. Recently, experts from Morgan Stanley also issued their verdict. They reaffirmed their buy recommendation and set a price target of $144, which would represent a new all-time high and a 34 percent increase from the current price. Nvidia benefits significantly from strong performance in the data center segment. However, given the volatile phase around the release of quarterly results, the question arises: Should investors get in now or wait? Last year, Nvidia presented impressive figures. In the first fiscal quarter, which ended in April, high demand for the H100 graphics processors led to a remarkable revenue growth of 427 percent in the data center segment. These highly profitable chips resulted in an enormous 629 percent year-over-year increase in earnings per share. Such impressive results could support new highs for the stock in the near future. A forward price-to-earnings ratio (P/E ratio) of 38, using Wall Street consensus estimates for long-term earnings growth of 33 percent, yields a PEG ratio of 1.15. This is an indication that growth stocks are considered undervalued when their PEG ratio is below the earnings growth percentage. However, the chip industry can be subject to unexpected growth slowdowns. Additionally, Nvidia faces growing competition from cloud providers and other semiconductor companies developing customized chips for artificial intelligence. If Nvidia again demonstrates solid growth, this could highlight the potential for future price gains. Investors would then have the opportunity to benefit from further price increases even after the quarterly report. However, consider the following before investing: The analyst team at Stock Advisor recently identified ten stocks they believe represent the best buying opportunities right now—Nvidia was not among them. The ten selected stocks could yield significant returns in the coming years. Stock Advisor offers investors an easy-to-understand success strategy, including portfolio building, regular updates from analysts, and two new stock tips per month. Since 2002, the service has outperformed the S&P 500's return more than fourfold. Excellent performance and fair valuation: Nvidia remains in focus, but caution may be warranted.