Tech giant Nvidia (NVDA) has long been one of the darlings of the Nasdaq’s repertoire of time-honored growth stocks. With over 600% growth posted over the past five years and a market cap of over $450 billion, the computer graphics specialists is a certified industry juggernaut. So why, with Web 3.0 just around the corner, is NVDA’s share price having such a rocky start to 2022?
In the wake of an all-time high in November 2021 which saw Nvidia's stock price climb to a value of $330, Wall Street endured an inflation-driven downturn that particularly impacted tech stocks. Today, Nvidia sits more than 43% adrift of its all-time high despite being one of the strongest tech stocks of the past decade.
In recent years, Nvidia has been propped up by multiple lucrative tailwinds, from data center and gaming to automotive, AI, and cryptocurrency. With key businesses adapting their models to incorporate the emergence of the metaverse and Web 3.0, Nvidia appeared set to become a key player in the next great evolutionary step of the World Wide Web before the stock was dragged down.
As we can see from Nvidia's price movements, the stock is still sitting pretty despite a labored start to 2022, but it’s important to acknowledge that the value wiped off of the company’s market cap is unprecedented. Furthermore, Baird Stock Analyst Tristan Gerra believes more short-term pain may be in store.
“We believe order cancellations recently started in consumer GPUs, driven by excess consumer GPU inventories notably in Western Europe and Asia, a slowdown in consumer demand (reflected by an ongoing reduction in graphic cards pricing) notably in China, slowdown in PC demand, along with short-term factors such as covid-related shutdowns in China (logistical issues) and the Russia embargo,” Gerra told Yahoo Finance.
Due to embargoes on Russia, and the nation’s gaming and cryptocurrency mining usage, a larger drop in GPU demand than the consensus view is perhaps on the way. In addition to this, weakening GPU demand from China’s consumer markets, which represents between 25% and 30% of the world’s entire GPU market, has "significantly weakened across the board."
Looking to the bigger picture
Despite wider market pressures forcing Nvidia's stock into a downturn following years of parabolic growth, there’s little doubt that the company has an exciting future ahead.
For instance, the company’s RTX 2030 series graphics cards have performed well on the market, whilst Nvidia stock shortages have been a key part of supply chain issues in computing due to the past two years of consistent demand. In fact, demand reportedly grew to a point that Nvidia would’ve likely struggled to adhere to demand even without chip shortages.
Nvidia is expected to announce its RTX 40 series GPUs in autumn 2022, which is set to pave the way for a fresh drive for hardware upgrades among users.
Significantly, it is Nvidia's suite of services designed to ready the company for the age of the metaverse that’s likely to ensure that it enjoys a prosperous future and a return to form on Wall Street. At the company’s Graphics Technology Conference 2022, a series of products like Hopper chips for AI supercomputers, Grace GPUs for the data center, a new DRIVE Hyperion 9 driving platform, and an expansion of the Nvidia Omniverse entry into the metaverse market, were announced. Nvidia's influential role in the development of the metaverse can’t be understated.
Maxim Manturov, head of investment advice at Freedom Finance Europe, has claimed that the metaverse’s growth is set to be extraordinary throughout the course of the decade - with NVDA highlighted as a key stock to track.
"Metaverses will affect almost every industry on the planet. Regardless of what you do for a living, it's likely that this technology will find applications in your field in the future,” Manturov explained. “Companies have so many ways to use spatial technology, from hosting virtual events to duplicating their inventory with 3D models or advertising using AR lenses on Snapchat, Instagram/Facebook, and soon on Tik Tok. According to analysts at MetaMetric Solutions, real estate sales in the metaverse will exceed $500m in 2021 and could double in 2022.”
Manturov added, “Emergen Research analysts predict the metaverse market will grow to $829bn by 2028 and Bloomberg Intelligence analysts predict it will reach $800bn by 2024. Morgan Stanley estimates China's metaverse market could be worth about $8 trillion in the coming years."
Such astronomical figures go some way in illustrating the scale of the addressable market that Nvidia may be capable of reaching over the coming years.
Although Nvidia's short term outlook has been clouded by multiple mitigating factors surrounding large scale tech-stock sell-offs, record breaking inflation, chip shortages and geopolitical tensions emerging from Russia, there’s still plenty for investors to remain optimistic about in the company’s future. While more losses could still be around the corner, looking beyond 2022 to the emergence of the metaverse portrays a tech landscape that may be powered by Nvidia products. Should the company grow to supply GPUs to make future iterations of the metaverse a reality, today’s prices for NVDA may be looked back on as extremely cheap.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.