The Positive And Negative Surprises In Nvidia's Q4 Conference Call

Following NVIDIA Corporation (NASDAQ: NVDA)'s fourth-quarter earnings results, Michael McConnell of Pacific Crest argued that the stock has reached its peak and placed a $99 fair value.

Loop Capital Markets' Betsy Van Hees took the other side of the trade and suggested Nvidia's stock will see upside in 2017.

According to Van Hees, Nvidia's fourth-quarter report wasn't a "blow out" like it was in the third quarter, but the results were nevertheless "solid." The analyst added that the company's first-quarter guidance is likely conservative so management can "keep expectations reigned in so it can continue its impressive pattern of beats and raises."

Positive And Negative Surprises

Van Hees continued that Nvidia's management offered investors a surprise during the conference call. Specifically, the company highlighted its strong data center business, which grew 23 percent quarter-over-quarter and subsequent commentary that the business will grow even more on a quarter-over-quarter basis.

On the other hand, Van Hees highlighted a negative surprise during the call: A "strong step up" in operating expenditures in the first quarter. Nvidia's management highlighted the fact that it needs to undertake heavy spending to support multiple growth initiatives in new growth areas such as artificial intelligence, autonomous cars, cloud computer and gaming.

Price Target

The analyst's price target on Nvidia's stock was boosted to $129 from a previous $120 which is based on a 30x (up from 28x) multiple on the company's fiscal 2019 pro former earnings per share estimate of $3.94 (up from $3.93) plus $10.30 (up from $10.22) per share in cash.

"We believe NVDA should trade well above the blended peer group average of 21x given its impressive growth opportunities across multiple end markets and strong GAAP gross margin and operating margin profile," the analyst concluded.

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