Analyst: Nvidia's Sell-Off Was Overdone, Time To Establish Or Add To A Position

NVIDIA Corporation NVDA shares bounced 3.8 percent on Moday after a post-earnings sell-off took the stock significantly lower last week. According to Argus analyst Jim Kelleher, traders buying on the dip were making the right move.

You wouldn’t know it by the way the stock reacted, but Nvidia actually reported strong Q2 numbers, including above-consensus earnings and revenue, impressive growth and expanding margins. In fact, much of the stock’s weakness last week was likely due to profit taking following Nvidia’s nearly 800-percent gain in the past three years.

Kelleher said the Nvidia sell-off wasn't company-specific and is instead part of a recent profit-taking phenomenon in the technology space as global geopolitical tensions escalate.

Looking ahead, however, Nvdia guided for revenue of $2.35 billion, well ahead of its previous projections of $2.1 billion. Kelleher saw nothing in Nvidia’s quarter that changed his bullish thesis on the company.

“We would use this nonfundamental selloff as an opportunity to add to or establish positions in NVDA, which remains a leading silicon play on AI, autonomous vehicles, machine learning, and next-generation data center,” he wrote.

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One of the major arguments from Nvidia bears is that the stock’s valuation has gotten out of control. Nvidia currently trades at 39.7 times Argus’ 2019 EPS estimate. Its current forward PE of 40.7 is more than twice its five-year historical average of 20.2. However, Kelleher said Nvidia deserves its premium valuation given the massive, long-term growth businesses in which it has a leading presence, including PC gaming autonomous driving, robotics and virtual reality.

Argus maintains its Buy rating for Nvidia and $175 price target for the stock.