Oppenheimer Upgrades Nvidia: 'We See Continued Outsized Growth'

Notwithstanding the earnings-induced pullback in NVIDIA Corporation NVDA shares, an Oppenheimer analyst deemed the chipmaker worthy of an upgrade.   

The Analyst

Analyst Rick Schafer upgraded Nvidia from Perform to Outperform and maintained a $310 price target.

The Thesis

Nvidia's Q2 EPS of $1.94 and revenue of $3.12 billion exceeded consensus estimates that called for EPS of $1.85 and sales of $3.1 billion, Schafer said in a Friday note. (See the analyst's track record here.) 

The core gaming and data center segments accounted for a combined 82 percent of sales, with all segments reporting year-over-year growth, the analyst said. 

Data center saw 85-percent growth and gaming grew 52 percent, Schafer said. 

Oppenheimer's checks revealed significant pent-up demand for new Turing GPUs, the analyst said. As volumes ramp up, Schafer said he expects gaming to drive upside in the second half.

Nvidia's gross margin, which was at 63.5 percent in Q2, is likely to hover near 63 percent for the next few quarters in the absence of crypto sales, according to Oppenheimer. Free cash flow at the end of Q2 was at $785 million.

Oppenheimer increased its calendar 2018 and 2019 EPS estimates to $7.90 and $8.74, respectively, and introduced a calendar 2020 EPS estimate of $10.56.

"With three solid, structural growth drivers in DC AI, gaming and autonomous, we see continued outsized growth," Schafer said. 

The Price Action

Nividia shares have gained about 33 percent year-to-date. The stock was trading down 4.44 percent to $246.02 at the time of publication Friday. 

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