After NVIDIA's Solid Q3, Analyst Sees 18% Upside

Strength in datacenter and gaming led to better-than-expected quarterly results at NVIDIA Corporation NVDA, which set at a new 52-week high of $79.90 on Friday and continued to rise from there.

The Quarter's Positives

NVIDIA saw strong demand for gaming, VR, self-driving cars and datacenter AI computing applications, with strong adoption of Pascal. Gaming revenue rose 63 percent and Data Center revenue grew 193 percent during the third quarter.

However, Pacific Crest maintains its Sector Weight rating on the stock, with a fair value estimate of $80, which implies an upside of 18 percent over Thursday’s close.

“We remain on the sidelines with the shares given peaking GPU unit share versus AMD, modest operating-margin expansion in F2018 and the stock’s premium valuation,” analyst Michael McConnell wrote in a note.

Further, the analyst pointed out increasing share of Advanced Micro Devices, Inc. AMD in the PC OEM market as desktop graphics card manufacturers expect AMD unit share at PC OEMs to increase to 70–75 percent in the fourth quarter from 55–65 percent in the second/third quarter of 2016.

“While share gains in the channel for AMD appear modest, conversations with desktop graphics card manufacturers indicate that Polaris is making market share inroads at PC OEMs,” McConnell highlighted.

Guidance, Analyst Estimates And Current Performance

Meanwhile, NVIDIA guided fourth-quarter sales to a midpoint of $2.10 billion, above Pacific Crest estimate of $1.76 billion. Gross margin was guided flat sequentially at 59 percent, above Pacific Crest estimate of 58.1 percent. As such, the analyst estimates EPS at $0.80 versus his previous estimate of $0.59 and the Street’s $0.56.

At last check, NVIDIA shares were seen up 24.49 percent at $84.36.