Nvidia Corp NVDA stock is trading higher amid reports of its plans to secure a long-term stake in the Softbank Group Corp SFTBF SFTBY backed British chip designer Arm IPO.
Truist analyst William Stein reiterated a Buy rating on Nvidia and raised the price target to $545 from $470 Friday.
The re-rating reflected a combination of industry contact (semi-buyers/ sellers) feedback and public commentary from listed companies.
Stein raised his NVDA data center's end market revenue growth expectations for 2Q23 and several future quarters.
The change takes his Datacenter end market growth expectation from +105% to +110% in CY23 and from +26% to +48% in CY24.
Stein is above-consensus in near-term quarters and for both CY23 and CY24. The analyst's higher estimates relate to management commentary and industry contact feedback.
NVDA management has highlighted recent capacity investments to support a much stronger second-half revenue outcome.
Recent feedback from Stein's industry contacts (buyers & sellers of electronic components) reflects improving demand in datacenter generally and reflects upside demand for NVDA's products.
According to a source, the only semis requesting meaningful upsides right now are NVDA and AVGO.
The massive upside surprise in NVDA's Q2 guide was confounding, considering the company's supply chain affords analysts & investors a wide array of partners to discover unit drivers of growth.
Stein attributes the magnitude of the surprise to three topics, which enables him to envision an even more rapid growth potential for NVDA's Datacenter end market in the coming quarters.
The analyst believes NVDA's like-for-like product pricing has increased, and this dynamic can continue in future quarters.
The variability of product (and pricing) within NVDA's revenue is significant. It includes A100, A800, H100, and H800 GPUs, Bluefield 3 DPUs, some (modest volume) Grace CPUs, and Grace-Hopper Superchips.
The form factor also triggers significant variance in revenue: the company sells GPUs in PCIe, HGX servers, DGX servers, Spectrum-X, MGX modular systems, and the like. These significantly complicate the predictability of NVDA's revenue but help to consider the possibility that NVDA's revenue will increasingly mix towards more complex and expensive form factors over time.
Furthermore, while the mix of software and services is minimal today, it can rise significantly in the future.
Stein believes some of NVDA's positive results & guidance will rely on complementary semis that NVDA's partners may have shipped in 2022. While this likely challenged the forecasting relative to the 2Q23 guide, the inventory mismatch should ease over time as NVDA's EMS partners work that inventory down.
The price target is $545 based on 48X his CY24 EPS estimate of $11.36.
Price Action: NVDA shares traded higher by 2.80% at $472.64 on the last check Friday.
Photo by Mizter_X94 via Pixabay
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