Nvidia Q2 Roundup: Analysts See 'Only Perpetual Growth Story In Semis,' Premium Valuation

NVIDIA Corporation NVDA reported forecast-beating second-quarter results Wednesday and issued above-consensus third-quarter revenue guidance.

The Nvidia Analysts: Reviewing the results, BofA Securities analyst Vivek Arya reiterated a Buy rating and increased the price target from $520 to $600.

Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and hiked the price target from $500 to $600.

KeyBanc Capital Markets analyst Mitch Steves maintained an Outperform rating and lifted the price target from $461 to $528.

Raymond James analyst Chris Caso reiterated an Outperform rating and increased the price target from $500 to $550.

Needham analyst Rajvindra Gill maintained a Buy rating and raised the price target from $400 to $600.

Mizuho Securities analyst Vijay Rakesh reiterated a Buy rating and increased the price target from $400 to $520.

KeyBanc Capital Markets analyst Weston Twigg maintained a Sector Weight rating.

BMO Capital Markets analyst Ambrish Srivastava has an Outperform rating and $565 price target.

Nvidia Has 'Unassailable' Lead, BofA Says: Nvidia reported 30% year-over-year sales growth, 50% pro forma EPS organic growth and 38% free cash flow margins, Arya said in a note.

The FCF margins are best-in-class not just for large-cap semiconductor companies, but for all of the tech sector, the analyst said.

Arya sees continued secular momentum, with new product cycles and an anticipated recovery in cyclical autos and professional visualization in calendar year 2021.

"Bigger picture, we believe NVDA has an unassailable hardware/software/developer lead in some of the largest and fastest-growing markets in semis/tech (AI, gaming, autonomous)," the analyst said. 

This can potentially drive sales growth to 20%-plus and EPS growth to 25%-plus to head toward $22 per share by calendar year 2024, prepping Nvidia for the distinction of being the first $500-billion market cap chip vendor at current multiples, according to BofA. 

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Rosenblatt Says Nvidia Benefits From Multiyear Compute Cycles: Nvidia executed a strong beat-and-raise, with broad and strong gaming, data center compute and networking cycles in the second half, Mosesmann said in a note. 

Nvidia suggested strong visibility given a potential best-ever gaming cycle driven by new product launches and the mainstreaming of ray tracing in games, the analyst said. 

The Ampere A100 compute GPU is likely to enable a disruptive change in data center architecture, he said. 

Investor nervousness on the grounds of an Intel Corporation INTC data center pause in the second half are ill-founded, as data center upgrades are being done modularly, Mosesmann said.

With most cloud workloads benefiting from acceleration, Ampere is likely to see significant adoption, the analyst said. 

"We see a multi-year data center GPU compute cycle for Nvidia that is accelerated by the networking/fabric prowess of Mellanox, with increasing gross margin as more of the business model sees increasing and recurring software sales."

RBC 'Would Be Buyers' On Nvidia Weakness: The initial negative stock price reaction to Nvidia's results was due to high expectations and a debate around the product launch ramp, Steves said in a note. 

The single-digit quarter-over-quarter growth Nvidia is hinting at for the Ampere launch suggests healthier-than-expected demand, given that the first quarter after the Volta launch saw a notable pause in growth, the analyst said.

The gaming segment should see a product refresh Sept. 1, resulting in product launch costs, which may explain the soft gross margin guidance, he said. 

"Overall, we would be buyers of weakness if the stock trades down notably." 

RayJay Sticks With Nvidia Despite Valuation: The upside is driven by two product cycles this year: Ampere for data center and the upcoming gaming launch, Caso said in a note.

The stock's valuation tempers some of the optimism, the analyst said.

Raymond James' revised 2022 EPS estimate is $10, implying a 48x multiple, he said.

The higher EPS estimates are based on an assumption of 20% year-over-year core data center growth, in line with hyperscale capex spending, Caso said. 

"Over the long term, NVDA is likely to grow at a multiple of cloud growth as AI training grows faster than overall data center, they penetrate more deeply into inferencing and benefit from rising ASPs." 

Growth appears to be accelerating with the new product cycle, the analyst said, adding that as long as that continues, Raymond James would stick with the stock.

Needham Says Nvidia The Only Perpetual Growth Story In Semis: Nvidia is set up for a strong second half, as its brand new 7nm Ampere GPU ramp is across a diverse set of customers, and gaming is entering one of the best seasons in recent memory, Gill said in a note. 

Nvidia is "the only perpetual growth story in semis," with a full stack computing solution designed to support the AI revolution spreading across the global economy, the analyst said.

KeyBanc Remains Constructive On Nvidia: Nvidia is gearing up for a continuation of strong gaming demand in the second half, Twigg said in a note.

The new A100 data center GPU continues to perform well, driving most of the data center growth outside of the Mellanox acquisition, the analyst said. 

Nvidia maintained a bullish view on the second half, despite concerns about data center digestion, he said.

"We're raising our estimates sharply, and we remain constructive on NVDA's long-term opportunity; however, we remain Sector Weight due to high valuation."

NVDA Price Action: At last check, Nvidia shares were rising 0.72% to $489.06. 

Related Link: Why This Nvidia Analyst Says Xilinx Makes More Sense For Graphic Chipmaker's M&A

Photo courtesy of Nvidia.