Nvidia Is A Buy Ahead Of Q3 Earnings, Says Bullish Analyst

Nvidia Corp NVDA stock offers compelling valuation ahead of reporting its third quarter earnings on Nov. 21, said BofA Securities in a preview note. Bank of America expects Nvidia to report an earnings beat.

The Wall Street firm saw enterprise genAI and new product launches as key levers to the firm’s future growth. The U.S. government’s restriction on advanced AI shipments to China did impact the business, but this risk appeared already priced in.

The NVDA Analyst: Bank of America Securities’ analyst Vivek Arya had a price target of $650 on Nvidia stock, based on 42x CY24E PE ex cash. Nvidia’s historical forward-year PE range is 26x – 69x.

The NVDA Takeaways: BofA Securities expected NVDA stock to register a beat on earnings consensus on Nov. 21. The bank saw a compelling opportunity as the stock traded at 26x CY24 PE (vs. key competitor Advanced Micro Devices Inc. AMD trading at 29x).

According to the firm, stock gains from NVDA stock would be led by:

1. Acknowledging and sizing CY24 China restriction sales impact: Around $8 to $10 billion gross and $4 to $5 billion net, per BofAS).
   
   “Sizing China risk could be dilutive to EPS but perhaps accretive to PE multiple,” said the note.
   
2. CY25 growth opportunity: As more industry capacity/competition comes online in CY24, the company’s enterprise genAI and new hardware pipeline should play key roles.
   
   “Investors could be underestimating: 1) Potential rise of genAI adoption by enterprise customers… (such as with ServiceNow, Accenture) … and 2) Faster cadence of product launches incl. upcoming B100 and Grace CPU for server/PCs.”

Arya saw data center demand (with long-term demand dynamics in its favor) strengthening Nividia’s stock case. Arya didn’t fail to acknowledge any weakness in the consumer gaming market, competition from Advanced Micro Devices, Broadcom and Marvell in the accelerated computer market, U.S. government restrictions, the potential for auto slowdown, and/or an elevated opex growth as risks to their thesis.

NVDA Price Action: Nvidia was trading up 0.68% at $453.10 at publication Monday.

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