Hold-Rated NVIDIA Gets Premium

As the only remaining major independent player in the market for Graphic Processing Units (GPUs) used in PCs, NVIDIA Corporation (NVDA - Analyst Report) is well-positioned to benefit from increased graphics requirements. We are positive on the company's Computer Unified Device Architecture (CUDA) initiative, which should drive additional uses for its installed base of GPUs.

However, product-related transitional issues have taken a toll on gross margins, and we continue to be cautious on the outlook for consumer spending. Enterprise-level capital spending is highly sensitive to changes in the economy and this is likely to cut into the future demand for PCs should the U.S. economy slow as expected. We therefore maintain a Hold rating on the shares.

Shares of NVIDIA are currently trading at 14.5x our fiscal 2009 EPS estimate of $1.33. We set our six-month price target of $20.50. Our target price represents a multiple of 15.4x our fiscal 2009 EPS estimate, a premium to the industry mean, which we believe is deserved given NVIDIA's strong position.

Read the full analyst report on NVDA