Why Nvidia Stock Analysts Are Bullish After Q2 Earnings

Why Nvidia Stock Analysts Are Bullish After Q2 Earnings

Nvidia, Inc. NVDA reported stellar quarterly results Wednesday thanks to strong performances by its data center and gaming businesses.

The Nvidia Analysts: BofA Securities analyst Vivek Arya reiterated a Buy rating on Nvidia shares and increased the price target from $250 to $260.

Raymond James analyst Chris Caso reiterated a Strong Buy rating and $225 price target.

BMO Capital Markets analyst Ambrish Srivastava maintained an Outperform rating and $250.

Wells Fargo Securities analyst Aaron Rakers has an Overweight rating and $245 price target.

Oppenheimer analyst Rick Schafer reiterated an Outperform rating and $235 price target.

Mizuho Securities analyst Vijay Rakesh maintained a Buy rating and $235 price target.

Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and increased the price target from $250 to $300.

Needham analyst Rajvindra Gill maintained a Buy rating and hiked the price target from $200 to $245.

KeyBanc Capital Markets analyst John Vinh maintained an Overweight rating and raised the price target from $238 to $245.

BofA Expects Accelerated Data Center Growth: Nvidia reported second-quarter revenue of $6.5 billion, up 68% year-over-year, and $170 million above the consensus estimate, BofA analyst Arya said in a note.

The company guided to third-quarter revenue above consensus and gross margins to a record 67%, the analyst said. 

Much of the sequential improvement in the third quarter will likely be driven by data center, suggesting an acceleration is in the cards following four quarters of deceleration, he said.

Gaming demand, Arya said, remains solid due to limited penetration of ray-tracing technology and the expanding traditional and e-sports gamer base.

Crypto-specific crypto mining processor revenue will likely fall to as low as $50 million in the third quarter before tapering off to zero by the start of 2022, Arya said.

RayJay Says Premium Valuation Is Justified By Growth: Nvidia remains severely supply constrained, and the company expects these constraints to continue through all of next year, RayJay's Caso said. This suggests there is continued unfulfilled demand and a likelihood of low inventory, he added.

"And while the near term risks are important for the stock, NVDA is of course not a short-term story," the analyst said.

Investors are likely to continue to pay for Nvidia's strong growth despite the premium valuation of the stock, Caso said.

Related Link: Why Nvidia Is Much More Than Just A Chip Stock

Wells Fargo's Take On Nvidia's Data Center Growth: Nvidia can grow data center revenues at a 20%-30% clip on a CAGR basis over the next three to five years, Wells Fargo analyst Rakers said.

This is driven by a deepening data center growth story, which is a function of increasing GPU server attach rates amid AI proliferation, ramping of BlueField-2 DPU strategy, expanding recurring software and subscription models and a longer-term, Arm-based Grace CPU strategy, the analyst said.

Omniverse is another important piece of Nvidia's deepening platform strategy, Rakers said.

Nvidia Better Equipped In Constrained Environment, Oppenheimer Says: Nvidia remains the industry leader in high-performance gaming and is positioned for sustained structural growth led by data center/AI, Oppenheimer analyst Schafer said.

"Considering the company's relative size, we see NVDA better positioned than most to secure supply and capture share/upside in today's constrained environment," the analyst said.

The ARM acquisition adds strategic upside optionality, he added.

Mizuho Expects Supply Constraints To Limit Sequential Growth: Strong Ampere uptake has catalyzed 35% year-over-year growth for the Gaming segment, Mizuho analyst Rakesh said. The gaming strength is expected to see a sequential improvement in the October quarter, although supply constraints could limit further upside, he added.

Rosenblatt Continues To Like Nvidia Story: As the industry goes through what could be the biggest technology inflection, Nvidia is leading the way into new software platforms that will only cement the company as the premier AI play, Rosenblatt analyst Mosesmann said.

"We continue to like the Nvidia story and see the company as the best-in-class AI play with growth vectors into next generation networking/DPU adoption and early-days of autonomous driving S/W kicker," the analyst said.

Nvidia remains Rosenblatt's favorite secular semiconductor play, he added.

Needham Says Odds of Arm Deal Closing Less Than 20%: There have been some concerns from licensees or objections regarding the Arm transaction, and discussions with regulators are taking longer than initially thought, Needham analyst Gill said, citing the company.

The biggest obstacle, according to the analyst, is China's dependence on ARM architectures for its smartphones. The analyst also sees the U.K. objecting as well, as a matter of national pride to avoid relegating control of ARM to a U.S. corporation.

As such, the odds of this deal closing are no more than 20%, Gill said.

NVDA Price Action: At last check, Nvidia shares were rallying 3.75% to $197.54.

Related Link: Nvidia's New Ethereum Mining Chip: What You Need To Know

Posted In: Aaron RakersAmbrish SrivastavaBMO Capital MarketsBofA SecuritiesChris CasoHans MosesmannJohn VinhKeyBanc Capital MarketsMizuho SecuritiesNeedhamOppenheimerRajvindra GillRaymond JamesRick SchaferRosenblatt SecuritiesVijay RakeshVivek AryaWells Fargo SecuritiesAnalyst ColorEarningsNewsPrice TargetReiterationAnalyst RatingsTech