The recent weakness in shares of semiconductor manufacturer Nvidia Corp. (NVDA) presents an opportunity for tech investors to buy the chip stock at a discount price, according to one team of bulls on the Street. While Goldman reiterated its downbeat view of the semiconductor industry at large, citing deteriorating fundamentals in the fourth quarter and into 2019, the investment bank added Nvidia to its "conviction list," indicating that the company is shielded from a broader sector downturn.
Stay Selective Amid Cyclical Correction in Semis, Writes Nvidia Bull
In a note to clients on Thursday, Goldman Sachs reiterated its buy rating on the Santa Clara, Calif.-based chip maker, citing company-specific growth drivers that should outweigh negative headwinds for the sector at large, as outlined by Barron's.
"We foresee a cyclical correction approaching and recommend investors to stay selective in Semis,” wrote Goldman analyst Toshiya Hari. He views his peers on the Street as underestimating Nvidia's "idiosyncratic growth drivers such as its product cycle in gaming and potential share gains in data center and professional visualization," which he expects to boost earnings and stock price outperformance.
Shares of Nvidia have lagged the chip sector since the start of the month, down roughly 17.8% compared to the iShares PHLX Semiconductor ETF's (SOXX) 9.6% loss over the same period.
"We recommend investors to own/buy the stock at current levels with our long-term thesis intact," wrote Hari, whose newly lowered price target for Nvidia stock at $305 still implies an approximate 32% upside from current levels. Nvidia shares are trading down 3.5% on Friday afternoon at $231.15, reflecting a 19.5% increase year-to-date (YTD) compared to the S&P 500's 4% return.
Meanwhile, Goldman lowered its rating from neutral to sell on shares of Analog Devices (ADI) and Maxim Integrated (MXIM). Hari indicated that the primary reason his team is forecasting for an industry correction is due to the fact that the number of monthly semiconductor units is "tracking meaningfully above what we consider to be the long-term trend line," or about 16% above trend. An inventory surplus and negative data points in the automotive and industrial end-markets should also weigh on chip stocks, particularly analog semiconductor companies, added the Goldman analyst, as cited by CNBC.
As the Street becomes more bearish overall on prospects in the chip industry, investors will be keeping a close eye on Nvidia's fiscal third-quarter earnings report slated for Nov. 15.