Jefferies' Secular Trends Thesis In NVIDIA Just Starting, Remains A Top Pick

NVIDIA Corporation NVDA remains a top pick for Jefferies, saying that the firm's "four secular trends thesis [is] just starting to play out."

Analyst Mark Lipacis noted NVIDIA's first-quarter beat was driven by three of those four theses: datacenter (up 63 percent year-over-year), auto (up 47 percent year-over-year) and gaming (up 17 percent year-over-year).

"We think the 2HC16 gets better as NVDA benefits from VR headset ramps (4th trend) that require $300 ASP Graphics Cards, and as NVDA's 16nm Pascal ships into the PC Gaming and Data Center markets," Lipacis wrote in a note.

The company guided July quarter revenue of $1.35 billion (Street: $1.28 billion) and the analyst says the outlook implies $0.05 EPS upside.

Related Link: Tesla Demand Drove NVIDIA's Q1 Beat, Q2 Outlook

The analyst highlighted that five years ago, over 50 percent of NVIDIA's revenues competed with Intel Corporation INTC, and its gross margin was less than 40 percent. In the April quarter, the company's PC business was 8 percent and the product GM was 55.7 percent, 1600 bps higher.

"Three years down the road, we think NVDA has $3.50 of EPS power," said Lipacis, who has a Buy rating on the stock.

At the time of writing, shares of NVIDIA were up 14.33 percent on the day at $40.67. The analyst raised the price target to $45 from $42.