Despite a steep slide on Friday morning, Nvidia (NVDA) is still a viable play for those seeking a growth story into the fourth industrial revolution.
The stock has become significantly discounted this morning as shares are down by 18.4% to $165.27 as of 12:45 p.m. ET. That has sent its price to earnings ratio to just above 20, well below its highs north of 40 in September.
For the longer term, this is helping make the stock attractive for bullish investors looking beyond the crypto crunch and weak guidance.
"Despite the near-term softness, our view on NVDA's secular drivers in Gaming and Data center is unchanged and we see continued growth in 2020 even with tough comps as the impact of cryptocurrency fully unwinds," JPMorgan analyst Harlan Sur said in his assessment of the company's earnings results. "We remain overweight NVDA and would be buyers on weakness."
Data center revenues were a significant bright spot amid a rough quarter for the chipmaker, recording revenue improvement of 58% year over year.
"Data center, professional visualization and automotive all hit record levels," CFO Collette Kress told analysts Thursday night. "Demand remains strong for both the architecture products, including Tesla V100 and VGX systems, and our inference business continued to grow, benefiting from the launch of the Turing T4 Cloud GPU during the quarter."
The performance in these segments, which include the possibly massive autonomous driving industry, will help the company branch beyond gaming and certainly avoid being stung by cryptocurrency crashes.
"We remain positive on NVIDIA's secular growth drivers and see a pullback in shares as a solid entry point for investors," Sur concluded, accounting for the underlying stories in the non-gaming segments.
He set a $245 price target for December 2019 based on his rebound expectations.
Longer term, the stock could run higher based on its positioning in terms of secular shifts in computing.
"The 20% revenue miss notwithstanding, we continue to view NVDA as a top play on our '4th Tectonic Shift in Computing Thesis'," Jefferies analyst Mark Lipacis wrote in a note Friday.
Liapcis set forth the argument that parallel processing workloads such as neural networking, gaming, as well as blockchain and cryptocurrency are only becoming a larger part of computing processing cycles. He termed this transition to parallel processing, meaning processes split into parts that execute simultaneously on different processors attached to the same computer, a "tectonic shift."
"NVDA is uniquely positioned to benefit from this tectonic shift due to its leading position as a supplier of a parallel processing platform," he declared.
He set a $246 price target for the stock based on his bullish outlook, maintain a "Buy" rating and top pick status.
The bullish outlook for such a shift echoes the work of the Action Alerts Plus team, which recently exited its position on the stock's October strength.
"We still love the long-term story here and we will add the stock to the Bullpen and will look to re-enter a position should the headwinds abate and the stock falls to a lower price," Jim Cramer's team wrote on October 15. "While the long-term thesis still holds, we cannot let ourselves become greedy and lose sight of the challenges that will face the industry."
That exit, at a price point $100 above the open on Friday, proved to be a fortuitous one.
Timing is Everything
To be sure, the question of a re-entry point remains as it may take some time for the stock to bottom.
Real Money technical analyst Bruce Kamich suggested that the stock still has more room to fall before it reaches its bottom.
"A large gap to the downside is likely and the $180-$190 area is now likely to act as resistance," he wrote in his technical analysis column. "Prices could hold around $160, but the $120-$100 area is where I would anticipate prices to reach in the weeks ahead."
It will also likely take multiple quarters for the inventory issues cited in the call to sort out. Of course, for long-term investors looking at a secular shift, these down quarters could provide an attractive price point.
Timing that price point will be the key.
Jim Cramer correctly predicted the trajectory of Nvidia in October, click here to see what he said about getting back into the stock at some point.