NVIDIA Is Down By 5%, Here Is Why

Key Insights

• Baird downgraded NVIDIA due to slowing demand and order cancellations. 
• This is not the first downgrade in the industry, and the recent evidence suggests that demand weaker than previously expected. 
• NVIDIA remains a richly valued stock, which may present a problem if Treasury yields keep moving higher. 

NVIDIA Stock Falls After Analyst Downgrade

Shares of NVIDIA gained strong downside momentum after Baird downgraded the stock due to concerns about order cancellations. The investment firm stated that demand in the PC segment was slowing down, while sanctions on Russia would also hurt the demand for NVIDIA products.

This is not the first time that slowing PC demand is mentioned ahead of the earnings season. At the end of March, HP and Dell were downgraded by Morgan Stanley as analysts believed that hardware budgets would be cut.

At this point, it looks that the recent downgrades highlight the emerging trend, so traders should keep a close eye on the stocks in this market segment ahead of the earnings season.

What’s Next For NVIDIA Stock?

Analysts expect that NVIDIA will report earnings of $5.66 per share in the current year and earnings of $6.79 per share in the next year, so the stock is trading at 32 forward P/E.

While these valuation levels may look cheap for NVIDIA, it should be noted that concerns about the slowdown of the company’s growth may put material pressure on the stock.

In addition, Treasury yields keep moving higher, which is bearish for richly valued tech stocks like NVIDIA. The yield of 10-year Treasuries has already managed to get above the 2.75% level and keeps moving towards the psychologically important 3.00% level.

It remains to be seen whether traders will be ready to pay more than 30 forward P/E for a company whose growth may be slowing down due to the emerging weakness in the semiconductor industry.

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