NVIDIA Corporation NVDA reported strong fourth-quarter results, sending shares sharply higher in Friday's session.
The Nvidia Analysts
Wedbush analyst Matthew Bryson reiterated an Outperform rating on Nvidia and lifted the price target from $295 to $311
Needham analyst Rajvindra Gill maintained a Hold rating.
UBS analyst Timothy Arcuri maintained a Buy rating and raised the price target from $300 to $320.
Wells Fargo Securities analyst Aaron Rakers maintained an Overweight rating and $290 price target.
Morgan Stanley analyst Joseph Moore maintained an Overweight rating and lifted the price target from $259 to $304.
No Reason to Shift Bullish View
Nvidia handily beat expectations, thanks to 33% sequential growth in data center revenue to $968 million that drove $150 million revenue upside and about 100 basis-point gross margin upside. Earnings per share came in at $1.89, well ahead of the consensus estimate of $1.67.
On the flipside, Bryson said the company guided to a roughly $100 million headwind tied to the coronavirus, with the impact likely to be in the gaming segment.
"With data center momentum expected to continue, new products on the horizon that could further invigorate growth, and an accretive MLNX acquisition likely soon to be finalized, we see no reason to shift our view," Bryson wrote in the note.
Risk-Reward Profile Balanced
Nvidia's April quarter revenue guidance, implying year-over-year growth of 36%, is impressive, although off a relatively easier comparison, Gill said.
The analyst believes data center, the company's biggest growth engine, is recovering amid a ramp in hyperscaler sales and improved visibility. Competitive dynamics in the data center market could impact the company's long-term positioning in the market. Gill expects gaming sales to remain strong, as the number of games having ray-tracing capabilities continue to ramp.
"We are on the sidelines on NVDA, as we believe the company does not have sufficient earnings growth potential to justify its high valuation," Gill wrote in a note.
See Also: Nvidia Analysts Raise Price Targets Ahead Of Q4 Print
Data Center To More Than Double By 2021
Data center strength was broad based, even ahead of the 7nm Ampere product cycles likely to be announced at the GTC/Analyst Day, Arcuri said. The analyst estimates inference now accounts for about 15% of data center revenue.
The analyst sees path for data center to more than double by calendar year 2021 relative to 2019, as hyperscalers embrace the new product cycle, and growth broadens to public cloud and other more traditional verticals of the economy.
By the same timeframe, Arcuri expects gaming to benefit from a new product cycle, creating a path back to $1.6 billion/quarter, excluding Switch. Gross margin still has headroom, as the mix shifts to data center.
Positive On Mellanox Acquisition
With Nvidia management pointing to an acceleration in the sequential growth for the data center business, Rakers said anything at 20%+ sequential growth would be incrementally positive. The analyst noted the company is experiencing RTX/Ray Tracing strength and mobile PC momentum.
Wells Fargo maintains a positive view on Nvidia's pending Mellanox Technologies, Ltd. MLNX acquisition.
Introducing its 7nm Ampere products for data center at the data center developer's focused GTC will be a positive, Moore said. The Mellanox deal, which is expected to close early this year, would add accretion and growth potential to the model.
Further insights into the new 7nm consumer products are likely to be provided later this year, according to Moore.
"That backdrop, particularly if cloud spending remains strong, should keep the company beating and raising estimates through the year," the analyst wrote in the note.
Significant Upside
Nvidia continues to see an acceleration in data center and gaming chip demand, driven by increasing opportunities in all key secular leading-edge technology demands, Tigress Financial's Ivan Feinseth said.
"Nvidia is branching out into additional growth channels, including expanded data center capabilities, and into the science and medical fields, which are benefiting from the strength and speed of Nvidia's GPUs," Feinseth wrote in the note. He believes significant upside exists from current levels, and would recommend purchase.
NVDA Price Action
Nvidia shares were rallying 8.88% to $294.82.
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