Bull of the Day: NVIDIA (NVDA) – November 26, 2019

NVIDIA (NVDA Free Report) is back with a vengeance on all those analysts and investors who wrote off the gaming chip and crypto mining juggernaut.

As if recent upward estimate revisions and a 21% rally from October 1 through last week weren’t enough, on Monday Morgan Stanley upgraded shares to Overweight from Equal Weight, as the bank sees the stock deserving to move even higher in 2020.

Analyst Joseph Moore raised his price target on NVDA from $217 to $259, citing a revival in both Gaming and Data Center segment performance after strong investments made in 2019.

Moore described his team’s recent Cloud research that indicates the inflection in “conversational AI” is real and that new NVIDIA products in the data center arena are expected to fortify the elite chip-maker’s competitive advantage.

Return to Growth

NVIDIA reported their Q3 FY 2020 (ended Oct 31) on November 14 and delivered top and bottom line beats of ~5% and 13%, respectively. Revenues of $3.01 billion declined 5.2% year over year but rose 16.9% sequentially.

Gross profit margin of 64% was 180 basis points above consensus while operating margin of 38.4% was 210bps above consensus.

My favorite semiconductor analyst, William Stein of SunTrust, commented in a November 15 research note that NVDA’s improving Data Center outlook in Q4 only “hints” at what’s to come in 2020…

“Management’s commentary aligns with our proprietary industry contacts that reflect a significant re-acceleration in datacenter next year.”

Stein maintains his long-term positive view on NVIDIA fundamentals, including its superior positioning in gaming, server acceleration/AI, and eventually autonomous driving opportunities. He believes that NVDA still deserves a structural growth multiple of 30X EPS, and this valuation is still a 10-point discount to its high-growth peers.

With next year’s consensus EPS rising to $7.21, not including the Mellanox (acquisition), Stein raised his price target…

Source Link