Jefferies Upgrades NVIDIA On Virtual Reality 'Kicker'

• The share price of NVIDIA Corporation NVDA has risen 13.4 percent year-to-date.
• Jefferies’ Mark Lipacis has upgraded the rating on NVIDIA from Hold to Buy, while raising the price target from $23 to $30.
• Lipacis expects the secular growth trends in the Accelerating Computing in the Cloud, Auto and PC Gaming segments to drive the company’s revenues in the long term.

“Near term, we think NVDA benefits from a PC restock, and view it as an option on the nascent Virtual/Augmented Reality market,” Lipacis stated.

Given that less than 20 percent of gaming sales occurs within the United States, Lipacis believes that U.S. investors could be underestimating how rapidly the eSports industry has been growing. The prize pool for eSports tournaments is expected to reach $71 million in 2015. In addition, the second-most watched videos on YouTube are gaming videos.

The company’s Gaming GPU business has been growing at 26 percent CAGR over the last three years, although this was offset by a three-year compounded annual decline in the PC-OEM business.

However, with the PC-OEM business now accounting for less than 10 percent of the revenues, Lipacis believes that the growth in gaming would lead to topline growth.

On the other hand, NVIDIA’s Auto business has been growing at a three-year CAGR of 90 percent and now accounts for 6 percent of the company’s revenues. “NVDA Auto platforms play to secular safety and infotainment trends in Autos that we believe will quadruple NVDA's Auto penetration over the next four years at higher dollar content levels,” the Jefferies report said.

In addition, the High Performance Computing and Cloud business has been growing at a three-year CAGR of 29 percent and accounts for 6 percent of the revenues, while “NVDA GPUs will be the processing engine for a new slate of Virtual/Augmented reality products introduced over the next 3-to-12 months,” the report added.

Image Credit: Public Domain