Long-Time Nvidia Bear Upgrades Stock, Lifts Target To $200

NVIDIA Corporation NVDA, one of the hottest stocks throughout 2016 and 2017, showed in its third-quarter earnings reports few signs of any slowdown in momentum.

The Analyst

BMO Capital's Ambrish Srivastava upgraded Nvidia's stock from Underperform to Market Perform with a price target boosted from $135 to $200.

The Thesis

A prior negative stance on Nvidia was based on a view that the gaming business would see a "marked deceleration" in 2017, Srivastava, one of the few Nvidia bears, said in a note. But Nvidia's inclusion in Nintendo consoles along with the growing cyptocurrency market helped the company grow its business at a higher level than previously expected.

Nvidia's DCG (data center group) business also performed better than expected as the company capitalized on the growing artificial intelligence market, the analyst said. In fact, the recent earnings report showed the segment is on pace for a $2 billion run rate,which "made us question whether the market is indeed far greater than what we had expected previously." The leverage in Nvidia's business model is "far greater" than what was previously expected.

Price Action

Srivastava's prior stance suggested that the stock's valuation is overvalued on every metric. The analyst's revised $200 price target is based on a P/E Multiple of 45x calendar year 2018 EPS, which is premium versus the group's multiple of 16x and the stock's current multiple of 48x.

Shares of Nvidia were trading lower by around 1 percent at $214.12 Monday morning, but are higher by nearly 100 percent year to date.

Related Links:

Nvidia's Q3 Success Dampens Fear Of Gaming Growth Slowdown

What Wall Street Thinks Of Nvidia's Huge Quarter