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Nvidia Cut to Neutral as Stock Price Jumps 50% Since August

Wedbush said a 67X price target on Nvidia to maintain the outperform rating did not add up.

Shares of Nvidia  (NVDA) - Get NVIDIA Corporation Report wavered Friday after analysts at Wedbush downgraded the chipmaker to neutral from outperform, and clarified that the rating change was not tied to a negative catalyst but to its valuation.

Wedbush raised its price target on Nvidia to $300 a share from $220.

"While we remain very bullish on both Nvidia's near term prospects and longer term opportunities (particularly around Artificial Intelligence)," wrote analyst Matt Bryson in a note to investors. 

"We simply find ourselves unable to justify lifting our multiple to levels that would continue to justify an Outperform and as such we are shifting to a Neutral rating even as our target price lifts to $300 (from $220)." 

Wedbush said a 67X price target on Nvidia to maintain the outperform rating did not add up. Wedbush is using a 40X multiple for Nvidia's future earnings to calculate its price target for the stock.

"The only shift has been in Nvidia’s valuation with Nvidia’s stock price having jumped 50% since the last earnings call requiring us to significantly increase the multiple we use to justify a price target high enough to continue to rate Nvidia as an outperfrom," Bryson said.

Shares of the Santa Clara, Calif., company closed flat at $303.90 at the end of trading on Friday.

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Bryson was also bullish that Nvidia will report better-than-expected earnings next week. Nvidia reports third quarter earnings on Nov. 17.  

Analysts surveyed by FactSet are estimating earnings of $1.11 a share on revenue of $6.816 billion.

"We believe the combination of unprecedented demand (particularly this late in the course of product cycles) for both data center and client offerings will allow Nvidia to again exceed expectations next week when they report numbers," he added.

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The investment firm added that "the advent of the Omniverse and the more rapid electrification of autos and seemingly coinciding improvement in automotive intelligence could potentially allow Nvidia to provide a more ambitious view of its future Total Addressable Market."

According to the South China Post, the worldwide semiconductor supply shortage “is among the most urgent issues the U.S. government is focused on,” said Matt Murray, a senior official in the Bureau of Economic and Business Affairs at the State Department.

After Wells Fargo's five-star (at TipRanks) analyst Aaron Rakers increased his price target for Nvidia from $245 to $320, it became obvious that semiconductors would lead the rally, TheStreet’s Stephen Guilfoyle noted.