Despite a worsening supply shortage, the semiconductor industry delivered 32.4% year-over-year sales growth in February. However, rising corporate investments and government support to ramp up production should help ease the shortage in the near term. Furthermore, the demand for semiconductor chips should continue to climb as companies adopt new technologies to make their operations more efficient. The global semiconductor market is expected to grow at a 6.6% CAGR to $808.50 billion by 2030.
However, a slight decline in PC demand in the first quarter and a suspension of sales in Russia have led to a decline in the sales for chip giant NVIDIA Corporation (NVDA) of late. This has caused analysts to downgrade the stock. Also, despite weak sales, the stock is trading at a premium to its peers. NVDA’s 34.17x forward EV/EBIT is 116.1% higher than the 15.81x industry average. And in terms of forward Price/Cash Flow, NVDA is currently trading at 47.28x, which is 157.3% higher than the 18.38x industry average. So, we think the stock is susceptible to a retreat in the near term.
