After an increase of 76% in 2019, the shares of chipmaker NVIDIA Corporation (NASDAQ 🙂 are on fire again. Inventory more than doubled in 2020, fueled by the rising demand for chips used in data centers and game consoles.
A strong and impressive rally of NVIDIA stocks during the current global health crisis clearly separates this semiconductor stock from the rest of the crowd. Shares of NVIDIA have vastly outpaced it, up about 19% since the start of 2020. NVIDIA gained about 4.5% on Friday to close at $ 507.34.
The main question for investors, however, is how many more runways there are for this stock, especially when it trades at the highest price-earnings multiplication in nearly a decade.
Following the stock's surge this year, NVIDIA is now one of the most highly regarded chip stocks with a price-earnings ratio of 86.36, nearly three times the semiconductor group's average multiple of 30. That makes the share sensitive. correct for any negative surprise, especially when the economic and geopolitical environment remains fragile.
NVIDIA, based in Santa Clara, California, is the largest maker of graphics chips used in PC gaming. In recent years, the chipmaker has successfully adapted its technology to the artificial intelligence market, creating a new multi-billion dollar company.
Still, most of the company's revenue comes from PC gaming, where NVIDIA graphics chips create the most realistic experiences. Top-of-the-line GeForce parts cost more than many consumers spend on an entire PC.
Bullish Forecasts
The latest from NVIDIA gave mixed signals about the company's performance for the rest of the year. While data center sales were up 167% and gaming was up 26% in the second quarter, Chief Financial Officer Colette Kress said in a conference call that sales will grow in the & # 39; low-to-mid single digits & # 39 percentage in the fiscal third quarter, compared to the previous quarter.
While demand from major cloud service providers remains solid, the company has a more "mixed" view of corporate spending in some industries, the CFO added during the conference call, as quoted by Bloomberg. NVIDIA is also facing some slowdown in demand from cyclical industries such as automobiles.
But despite this cautious comment from management, analysts are generally optimistic about NVIDIA.
Bank of America analyst Vivek Arya raised his target price for the stock from $ 520 to a high of $ 600, up 18% from Friday's close.
Arya based his optimistic prediction on continued secular momentum with new product cycles (launch of the next generation 7nm Ampere) and cyclical auto recovery offsetting a potentially "lumpy" data center company. According to the analyst:
"Bigger picture, we think NVDA has an unassailable edge over hardware / software / developers in some of the largest and fastest growing semis / tech markets (AI, Gaming, Autonomous), all derived from a common architecture."
Jefferies analyst Mark Lipacis, who raised his price target to $ 570, says NVIDIA has been able to create a chip manufacturing ecosystem that is at the heart of AI and machine learning.
"We think the company will continue to surprise positively, and it would come as no surprise that NVDA would undertake more mergers and acquisitions to expand its data center system," he said in a note.
BMO Capital analyst Ambrish Srivastava also maintained his outperform rating as he raised his target price from $ 425 to $ 565 in a recent note.
"Given the continued run in stocks, expectations are high. However, we expect the company to deliver on earnings and expectations."
Bottom Line
NVDA is well positioned to capitalize on the global shift to work, study and entertainment from home. This trend has provided a perfect growth scenario for NVIDIA, which has chips to meet this demand. In the short term, there is little reason to believe that the current rally has run its course.
