Why BofA Has The Street's Highest Nvidia Price Target Ahead Of The Q2 Print

NVIDIA Corporation NVDA, which is set to report second-quarter results Aug. 19, has a superior long-term growth profile and a gaming upgrade cycle on the horizon, according to BofA Securities. 

The Nvidia Analyst: Vivek Arya reiterated a Buy rating on Nvidia shares and raised the price target from $460 to $520.

The Nvidia Thesis: Nvidia is likely to report an in-line July quarter, with sales of $3.65 billion — representing 42% year-over-year growth — due to resilient data center demand, Arya said in a Monday note. (See his track record here.)

The strength in data center will likely offset softness in the more cyclical auto business and professional visualization business, the analyst said. 

The October quarter guidance carries some risk on potential cloud inventory digestion, he said.

Compared to the double-digit quarter-over-quarter growth for data center over the last four quarters, Arya said he expects a slowdown to 3% growth in the October quarter.

Any weakness in cloud digestion could be offset by new product cycles and console ramps, likely driving strong growth in the gaming business, which accounts for about 40-50% of Nvidia's total sales, the analyst said. 

Just 10% of Nvidia gamers own a GPU on par with the baseline level that will be set once Xbox Series X and PS5 game console launches in the second half of the year, according to BofA.

The new consoles could catalyze a major upgrade cycle for Nvidia, either to Turing or next-gen 7nm Ampere, which could be unveiled sometime in the second half of 2020, Arya said. 

Sifting through monthly Steam GPU survey, the analyst said Nvidia's share of Steam gamers remain solid at 74.3%, and its installed base penetration of Turing grew 123 basis points to 24.7%.

NVDA Price Action: Nvidia shares were down 0.24% at $446.91 at last check Monday. 

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Photo courtesy of Nvidia.