(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Nvidia's Corp. (NVDA) shares have surged over the past two years. The stock price has risen by nearly 200 percent, easily outperforming the S&P 500 Index and many of its peers. That surging share price is because the company has been able to ramp up revenue growth at near-astronomical rates.

Now, Nvidia is facing a growth crisis. Its revenue and earnings growth are expected to decelerate sharply, which will rein in - and even pull down - its high-flying stock. That will become apparent when the company reports its fiscal 2018 third-quarter results on November 9 after the close of trading. Analysts' consensus estimates point to revenue growing by only 18 percent, to $2.363 billion, while earnings growth is expected to fall substantially as well.

In recent quarters, Nvidia's revenue has increased by more than 50% year over year. The market will now face the ultimate question when growth declines: Is it worth paying the hefty multiple for Nvidia's stock in a sector that historically does not trade hefty multiples? 

Slowing Growth

Starting in the summer of 2016, revenue for Nvidia jumped by 53 percent on a year-over-year basis, driven by strong growth in its gaming and data center segments.

Revenue growth is expected to slow to only 10 percent by the third quarter of 2019, a steep fall from the 56 percent year-over-year growth the company saw in the fiscal second quarter of 2018.

That decline in revenue could be a harsh wake-up call for investors who compare Nvidia's multiple to many of its peers. (See also: Intel, AMD Team up for the First Time Since the 80s to Take on Nvidia.)

(Data compiled from Ycharts)

Hefty Multiple

Nvidia's rapid rise has been fueled by massive gains in its gaming and data center businesses over the past two years. But with overall revenue growth slowing, profit growth is likely to take a hit, creating a drag on Nvidia's stock's price and trading multiple.

Shares of Nvidia trade at levels on a one-year forward earnings multiple that is much higher than its chipmaker peers Intel Corp. (INTC), Broadcom Ltd. (AVGO), Texas Instruments Inc. (TXN), and Qualcomm Inc. (QCOM). 

NVDA PE Ratio (Forward 1y) Chart

NVDA PE Ratio (Forward 1y) data by YCharts

For Nvidia, the wake-up call could be harsh because investors have gotten spoiled from the company's past successes. But like any big growth company, at some point, the rate of growth slows. And the market is left to revalue what it is willing to pay for the stock. 

For Nvidia, the time of slowing growth is now, and how the market responds to that slowdown is the biggest overhang on the company's stock price at the moment. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

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