3 months ago • 2 mins
Nvidia’s order book has been only getting fatter, bloating the chipmaker’s stock price as a result. Thing is, this popularity boost might not be as straightforward as it seems.
“Double ordering” is a common occurrence in the semiconductor industry. It happens in times of especially heady demand, when chipmakers can struggle to keep up – at least at first. And it leads to customers panicking that they won’t get the number of chips they need, in turn meaning they’d fall behind on their own orders and miss out on sales. So they order way more than they think they’ll actually need in anticipation that the producer will partially fulfill the order.
Here’s the problem: imagine that Nvidia somehow managed to ramp production and fulfilled all – or most – of those inflated orders. That’d leave Nvidia’s customers with a load of excess chips on their shelves, which would take time to use up. And that wouldd be bad news for Nvidia’s future orders.
You can’t eliminate the risk that Nvidia’s customers are inflating their orders right now, and you’ll want to keep a close eye on that. After all, Nvidia’s bumper valuation is based on those piling order numbers, so a slip-up could spook investors. But look, there’s no getting away from it: Nvidia does still have a lot going for it. Back in March, I argued that its cash flow could explode, sending the stock a whole lot higher. The latest forecasts from Wall Street analysts show that Nvidia looks set to make more than $20 billion in cash this financial year (up to January 2024) – five times more than the last. What’s more, if you believe Nvidia can stick to rapid growth over the longer term, then there’s still potential upside in the stock. Have a play around with my valuation calculator, which I wrote a manual on here.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
/3 • Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.