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Bull of the Day: Nvidia (NVDA)

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Founded in 1993 and headquartered in Santa Clara, CA, NVIDIA Corporation (NVDA - Free Report) is a worldwide leader in visual computing technologies and the inventor of the graphic processing unit (GPU).

The company has successfully transformed from a graphics chip to a GPU computing company and benefits from four multi-billion dollar GPU computing growth drivers —gaming, virtual reality (VR), artificial intelligence (AI), and self-driving cars.

Excellent Results Sent Estimates Higher

The company reported excellent results, beating on both the top and bottom lines and also raising guidance. Results were driven by strong growth in all segments.

Zacks Consensus Estimates for the current and next year have surged to $3.60 per share and $3.87 per share from $3.07 and $3.41 respectively. The company has an excellent record of beating estimates, having missed only once in the past 20 quarters, as you can see from the beautiful chart below:

NVIDIA Corporation Price, Consensus and EPS Surprise

NVIDIA Corporation Price, Consensus and EPS Surprise | NVIDIA Corporation Quote

Nvidia’s Most Bullish Call Yet

On Friday, shares surged more than 6% after a very bullish report from Evercore ISI. The analyst raised the price target from $180 to $250.

"As for major takeaways, our sense is management believes that investors still severely underestimates the impact of AI and the size of the potential market," he wrote after a meeting with the management.  "We are only at the cusp of AI's growth potential and NVIDIA is creating THE AI computing industry standard."

 Will Cryptocurrencies’ Woes Impact Nvidia?

Of late, the company has seen increasing demand for its GPUs for cryptocurrency mining. “Cryptocurrency and blockchain is here to stay. The market need for it is going to grow, and over time it will become quite large,” said the CEO during the conference call.

During the second quarter, Nvidia made about $130 million from etherum mining chip sales.

Bitcoin and ether lost a lot of their value last week after China’s second largest exchange announced its closure and regulators banned the so-called initial coin offerings in the country.

However, analysts believe that the downside risk for Nvidia from cryptocurrencies’’ woes is low. “We think that the risk of a ‘crypto-driven’ inventory correction driving material downside is low in the near term,” wrote Jefferies analyst.

"Banning the currencies only drives more use of the GPU chips sold by both companies in order to mine more currency," wrote RBC Capital analyst regarding Nvidia and AMD.

Bottom Line

NVDA shares are not cheap. They are up 73% this year and currently trade at a forward earnings multiple of 47.04x. But given strong demand for its chips in many high growth areas including data centers, AI, automated cars, gaming, AR/VR and cryptocurrency mining, the valuation appears justified by growth potential.

The stock jumped back to a Zacks Rank #1 (Strong Buy) after strong results. Further, industry rank in the top 1% also suggests strong chances of outperformance in short term.

Disclosure: I own shares of NVDA in my personal trading portfolio.

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