- The SEC fined Nvidia Corporation (NVDA) for failing to inform investors about the impact of crypto mining on its business.
- NVDA stock dropped on the news, which was announced on May 6.
- Investors should ignore the implications (for reasons I will explain), and view this as a sale in Nvidia stock.
Nvidia Corporation (NASDAQ:NVDA) has strong ties to crypto mining. Parallel processing — a factor in how well a computer can mine crypto — just happens to be the strong suit of graphics cards made by Nvidia. And for a time, sales of graphics cards to crypto miners had an over-sized impact on NVDA stock.
That time was 2018. However, in more recent times the U.S. Securities and Exchange Commission (SEC) came after Nvidia for not properly disclosing the impact of crypto mining on its business. On May 6, the SEC announced Nvidia was being fined $5.5 million as a result. NVDA stock dropped 9% the next day.
At $169.50, this was a new low close for NVDA stock in 2022, a year that has already been bad for most tech stocks. And it’s hit lower closing lows since. However, the SEC action is no reason to avoid NVDA. On the contrary, for investors in it for the long term, this drop in Nvidia stock was a gift. It opens the door to an opportunity to buy Nvidia shares at the best price in nearly a year.
| NVDA | Nvidia Corporation | $177.06 |
I’ve Said it Before, This Is Not 2018
There has been hand-wringing about Nvidia and the close relationship between crypto mining and graphics cards in the past. Last year, when many cryptocurrencies crashed, I reassured investors that 2021 would not be a repeat of 2018.
Remember 2018? If you owned NVDA shares, I bet you do. Crypto miners had been buying up Nvidia graphics cards meant for the PC gaming market. That was a big, temporary boost to the company’s revenue. When cryptos crashed in 2018, the market faced a glut of graphics cards. NVDA stock crashed.
Hard.
This is not 2018. Nvidia now sells graphics cards aimed specifically at crypto mining. They are of little use to gamers. The company also hobbled the processing power of its standard graphics cards if someone attempts to uses them in a crypto mining rig. The crypto business is isolated and Nvidia’s other businesses are insulated from its impact. We know how much of Nvidia’s business is directly crypto-related and it’s not big — just $24 million in the last quarter (out of $7.64 billion in revenue).
In addition, the SEC fine was specific to Nvidia’s reporting in 2018.
NVDA Stock Still Has Plenty of Growth in the Tank
Hopefully, I’ve made the point that potential NVDA stock investors shouldn’t be sweating that SEC fine.
As for Nvidia, the performance of the company’s stock in 2022 does not reflect the performance of the company itself. NVDA stock has foundered in 2022. However in its last quarter (reported in February), Nvidia itself did very well.
Revenue was up 53% year-over-year. The $7.64 billion in revenue was a record. In addition, the company’s Gaming, Data Center and Professional Visualization divisions all posted record quarterly revenue. GAAP earnings per diluted share of $1.18 were up 103% YoY, hitting another record.
Look to the future, and we see ongoing demand for graphics cards, a growing data center business, and increased demand for advanced chips from auto makers. In addition, the metaverse beckons and Nvidia chips are a key part of all aspects — content creation, PC access and the servers needed to host virtual worlds.
NVDA stock has lost its momentum in a trying 2022, but Nvidia the company has not.
Bottom Line: Should You Buy NVDA Stock?
Plug NVDA stock into Portfolio Grader and you’ll find it earns an “A” rating. It’s a strong buy. The primary concern with this stock is its moderate volatility risk — that’s the story of 2022.
Checking in with the Wall Street Journal, the investment analysts being tracked have NVDA rated as a consensus “overweight.” They have an average $322.21 price target. That is actually below the price shares reached last November, but it still works out to roughly 85% upside. That’s largely a reflection of the thrashing that NVDA stock has experienced through late 2021 and most of 2022 to date. But it’s also recognition that this is a company whose products are in extremely high demand, and tracking to be even more so in the future.
The SEC crypto mining fine? Ignore it. That was the past and the company has gone to considerable lengths since then to isolate crypto mining from its other businesses.
It’s awfully tempting to see an “A” rated stock with the proven performance of Nvidia discounted so heavily. NVDA stock would make a great addition to your growth portfolio.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.