Nvidia Corporation NVDA shares have been among the best-performing stocks so far this year. Ahead of the company's fiscal-year 2022, third-quarter results due Wednesday after the close, an analyst at Oppenheimer bumped up the price target for the shares.
The Nvidia Analyst: Rick Schafer reiterated an Outperform rating on Nvidia shares and increased the price target from $235 to $350.
The Nvidia Thesis: Nvidia is likely to report upside to consensus estimates for the third quarter that call for sales of $6.8 billion and earnings per share of $1.11, thanks to strong data center AI, analyst Schafer said in a note. The analyst also sees the company outperforming fourth-quarter consensus estimates.
Data center, accounting for about 36% of the revenues, is expected to see 19% quarter-over-quarter growth in the third quarter, led by A100 AI accelerators, the analyst said. Accelerator attach remains at less than 10%, he added.
"We see NVDA as a cornerstone of nascent metaverse builds (GPU, Omniverse,etc.)," Schafer said.
The company's leading "soup-to-nuts software/ hardware" platform solidifies its AI accelerator dominance, the analyst added.
Related Link: Nvidia Analyst Hikes Price Target By 30% On $10B Opportunity Presented By The Metaverse
Nvidia's gaming segment, accounting for about 47% of revenues, is expected to see a sequential increase of 3%, as gaming demand continues to outpace supply and channel inventories remain below-target levels, the analyst said. Gamers increasingly favor high-performance GPUs for e-sports and streaming content, he added.
RTX penetration is only about 20% of Nvidia's 200 million installed base, the analyst noted.
Crypto, the analyst said, will only make a minimal contribution going forward, as Ethereum ETH/USD moves to proof-of-stake.
The automotive segment, which saw a 1% sequential drop in the second quarter due to softer vehicle production, will likely be Nvidia's next major growth pillar, Schafer said. The company has an $8 billion auto revenue pipeline, with inflection expected in 2023 and 2024, he added.
Nvidia has internal efforts to develop its own ARM-based server CPU, which is expected to release in early 2023, the analyst noted.
Nvidia is likely to see sustained outsized growth led by DC/AI, gaming, and auto, with ARM adding strategic upside optionality, the analyst said.
With the stock adding over 40% over the past month, the bar is set higher, Oppenheimer said.
"We don't view earnings as a likely material catalyst near term but remain long-term buyers," the firm added.
NVDA Price Action: Nvidia shares were rallying 2.07% to $300.70 Thursday morning.
Related Link: Nvidia Rallies With Key Catalysts Ahead: Wil Chipmaker Be The Next To Join $1-Trillion Club?
Photo: Courtesy Nividia
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