Why This Nvidia Analyst Is Upping The Price Target Ahead Of Q3 Results

Why This Nvidia Analyst Is Upping The Price Target Ahead Of Q3 Results

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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