Nvidia (NVDA) is on everyone’s radar Monday, with shares flying higher nearly 15% over the past two trading days. What is fueling the surge? In a word: earnings.
The California-based chip manufacturing giant reported second-quarter earnings for fiscal 2020 after the market closed on Thursday. Though 2Q revenue was down 17% since last year — contributing to a 36% drop in EPS during the same time — analyst expectations were generally met. The company saw a large quarter-over-quarter rise in revenue from gaming (24%) and automotive (26%, also up 30% since last year), but saw sluggish gains from data center at 3% quarter-over-quarter.
The earnings prompted a wave of positive comments from industry analysts. Christopher Rolland of Susquehanna and Vivek Arya of Bank of America both maintained their bullish 'buy' ratings, along with price targets of $190 and $225, respectively. (To watch the analysts' track records, click here)
Nvidia’s automotive segment remains a massive opportunity for the company. Though Arya says segment revenue was likely boosted by non-recurring development agreements, on its way to reaching a quarter-record $200 million in sales, Nvidia is a leader in processing chips for automobiles. Cars are using more and more chips to perform computational functions, and demand will only continue to increase as autonomous capabilities are implemented in more vehicles. Furthermore, as Tesla recently took its chipmaking in-house, some analysts say this may spur other auto companies to double-down on their self-driving efforts, and spur demand for Nvidia.
On gaming, which Rolland calls a “modest outperformer,” Nvidia was helped by contributions from Nintendo Switch. Two new Switch consoles are expected to receive a new processing chip from Nvidia, due for release by the end of the year. While Rolland says “some investors may get hung up on the Nintendo Switch contribution viewed as lower-quality/lumpier revenue,” he is still optimistic on the segment.
Rolland is not “overly worried” nor surprised by slow-moving data center (DC) performance, as his pre-earnings report highlighted slowness in Asia. But the analyst is betting on the company’s new 7nm release — set for later this year or 2020 — to “reaccelerate growth.” Without it, Rolland cautions, worries over the segment would intensify. For his part, Arya takes a different approach at DC — he points to limited “visibility into cloud spending, which historically has been the largest driver” as a reason to be cautious. Nevertheless, Arya expects “data center sales to resume YoY growth in Q4.”
All in all, the analyst community is bullish on NVDA moving forward, and the recent solid earnings help. TipRanks analysis of 28 analyst ratings on Nvidia shows a Moderate Buy consensus, with 17 analysts recommending Buy, 7 hedging their bets with a Hold, and only one suggesting Sell. The average price target stands at $183.91, which represents an ~8% upside to current levels. (See NVDA's price targets and analyst ratings on TipRanks)