PC Market Be Damned, NVIDIA Stock Is A Buy

In a report published Monday, Macquarie analyst Deepon Nag upgraded the rating on

to Outperform, while raising the price target from $22 to $24. Analyst Deepon Nag mentioned that the earlier negative stance on the company reflected concerns about competition from

and

, a decelerating PC market and a decline in royalty rates in FY18. "While we are still concerned about a broader semi downturn and PC weakness, our checks indicate that consumer gaming PCs have been more resilient than we had previously expected, and believe that NVDA can maintain relatively high share in high-end discrete graphics in CY15," Nag wrote. The consensus estimate reflects 9 percent sequential growth in Q3, which appears high. IDC estimates a 12 percent y/y decline in the PC market in Q2, while "our checks indicate that a number of Chinese consumers (35-40% of AIB channel sales) have delayed discretionary purchases in order to invest in the local stock market," the Macquarie report stated. Nag added that checks also indicated that high-end consumer PCs continued to "sell well," which is expected to "partially offset" any sluggishness in the broader PC market and China. "Further, we believe that the upside from a potential Virtual Reality driven gaming cycle is too compelling to ignore," the report added. In another report, Pacific Crest analyst Michael McConnell said that NVIDIA's FQ2 margins "could surprise to the upside," boosting the shares higher. McConnell expects the company to report sales in-line with guidance of $1.01 billion, down 13 percent sequentially. Gross margin is likely to beat the guidance of 55.7-56.0 percent, "given strong Tesla and Quadro product mix in the quarter." "We expect FQ3 (Oct.) guidance to be in line with consensus of $1.1 billion (up 9% q/q) and EPS if $0.18 due to (1) forecasts for 10% to 20% q/q unit growth at desktop graphics card vendors for Q3, (2) 5% to 10% q/q unit growth for Quadro due to new product launches at SIGGRAPH, and (3) automotive growth given the company's current customer pipeline," McConnell added. Pacific Crest has a Sector Weight rating on NVIDIA.