Back to top

Image: Bigstock

Who Is Still Chasing NVIDIA and Why?

Read MoreHide Full Article

If you stayed long shares of NVIDIA NVDA after earnings, big congratulations are in order.

Unfortunately for me, and my followers, I listened to the crowd of Wall Street investment bank analysts who were neutral-to-bearish on the stock for valuation concerns and I recommended taking our profits near $120, after another solid earnings report on May 9 launched NVDA toward what quickly became all-time highs.

After reviewing the company's report and "show off" outlook the next day, I immediately knew I had made a mistake -- even though none of the "i-banks" with price targets near $100 were ready to admit they had.

All I could do -- besides suck it up and pay up to $130 -- was hope the stock would slow down a bit and give us a chance to get back in under $125.

Why was I so sure I could pay a 40X EPS multiple for the maker of the hot-selling "AI" chips called GPUs -- used in everything from gaming consoles and IBM's Watson to driverless 18-wheelers in Europe and the latest cloud computing customer service and security applications?

Because I reasoned that NVIDIA's brand of "AI" hardware was going to stay dominant and in demand for several more quarters, if not years. It certainly didn't hurt that the company had planned their hybrid tech conference/investor day on the morning after their May 9 report, at which they revealed further powerful innovations for their specialty processors.

To learn more about their GPU chips, see this vlog I made on March 9: Get Your "MPA" In Deep Learning

A select few i-banks agreed and saw the light early, like Goldman Sachs' semiconductor analyst who raised their price target from $130 to $165 on May 15. And RBC analysts who quickly raised their PT from $138 to $150 on May 11. Bank of America was also in this select group of bulls, raising their PT from $138 to $155 on May 22 after they thought about it for awhile.

But I was thinking about it immediately on the night of their report after I saw all the news coming out of "GPU-Con." Here's what I told my traders that night...

NVIDIA Delivers More WOW at GPU-Con

TAZR Traders

Today's Trade: Sold remaining NVDA shares at $18.75, midpoint of alert price and upper limit of $120.

The sale brings us back to 50% cash. And a 12.7% total return for the portfolio since inception January 24.

What a day for NVIDIA to also be presenting at the 8th annual GPU Technology Conference (they are the sponsor so it's not a coincidence).

I should have known they would WOW the tech crowd. Maybe all those bearish and neutral analysts will be changing their tune soon when they see what's coming.

Here was the flurry of 5 fantastic press releases that started coming out after 1pm ET this afternoon...

1) NVIDIA Launches Revolutionary Volta GPU Platform, Fueling Next Era of AI and High Performance Computing

2) NVIDIA Advances AI Computing Revolution with New Volta-Based DGX Systems

3) NVIDIA and Toyota Collaborate to Accelerate Market Introduction of Autonomous Cars

4) NVIDIA Ushers in New Era of Robotics, with Breakthroughs Making It Easier to Build and Train Intelligent Machines

5) NVIDIA and SAP Partner to Create a New Wave of AI Business Applications

There's something for every Tech lover here!

I can't wait to see how many analysts re-work their earnings model for increased sales off any one of these drivers.

We may see a few egos swallowed tomorrow and those bearish valuation calls reversed!

Looking forward to that!

But then it means we probably won't see much profit-taking back to $110.

Either way, as I said Monday night after the sale of half of our shares before the Tuesday report...

"I hated to do it because I think this rocket will continue to be one of the most explosive Semiconductor companies of this decade."


If you have time, click on the press release above that most grabs your attention and tool around their site, especially the blog which I've linked to many times because they do such a good job educating about their technology.

To wit, they also announced this week...

To meet surging demand for expertise in the field of AI, NVIDIA plans to train 100,000 developers this year -- a tenfold increase over 2016 -- through the NVIDIA Deep Learning Institute.

My price target for NVDA by the next earnings call in August was $140.

I too may be revising that.

(end of 5/10 note to subscribers)

And the next day, I kept diving into the unique technology investment story that is NVDA...

The One to Own for the Cyborg Future

TAZR Traders

Well, one analyst on NVDA saw the writing on the wall after the company's GPU conference/investor day.

He was already a solid bull, and therefore NOT one of the many "crow eaters" I expected -- all with price targets under $100 -- to flip over with a fresh outlook on the leader of AI.

The company's 5 news "reveals" yesterday definitely gave any one of them "cover" to reverse. They will, soon enough.

But even our bull sounded a little reluctant...

NVIDIA PT Raised to $150 at RBC Capital Following Analyst Day noting strength of 'Gross Margins, Data Center & A.I.'

RBC Capital raised its price target on NVIDIA to $150 from $138 while maintaining a Outperform rating, following the company presentations on Wednesday.

Analyst Mitch Steves suggested a more positive outlook on NVDA shares following the company's analyst day, noting improved confidence around Data Center growth, while AI remains a big, upside focus for management. Steves was also impressed by the growth potential in e-Sports.

For my part, NVIDIA is still one to own for the future of business and industrial automation. I'm adding it as #5 to my list of 4 stocks I picked last June in this area: AMZN, GOOGL, MSFT, and IBM (see my link below for more on that story).

And from the volume buying today by institutions, other than those who were short, it's pretty clear this one is not headed back to $110 any time soon.

Yes, there was a fair amount of chasing from the retail crowd who regret missing this rocket to the future.

But funds can buy and hold it here with no shame or regret even if it does go down to $110.

They can say "Now we get it. NVDA is the future of AI in the cloud, in factories, and on the road."

My only question is...

"Will we get a pullback to $120 to buy?"

Speaking of our highly-automated and "augmented intelligence" future around the next corner or decade, check out the podcast I did Tuesday where I connected my June 2016 Zacks Confidential report on "Big Economic Disruption: Big Data, AI, and Robotics" with an exciting new scholar who has some radical ideas about what the rich will do with "cyborg" type technologies -- and what will happen to the rest of society when "jobs" are much more scarce...

What to Do Before the Machines Take Over

(end of 5/11 note to subscribers)

So Who Is Still Buying NVDA and Why?

There are 4 important groups of buyers of NVDA stock on this move from below $130 to $145:

1. The shorts. Poor, misguided bears who might have covered at $120, only to be tempted to re-short every $5 higher. They keep chasing their losses higher.

2. The retail crowd. I can't blame them for loving this story. Every computer nerd and gaming geek who knows what a GPU is telling their family and friends to "Buy NVDA!" It's a dream come true for them to see such a chip stock back on the "Hot & Sexy" list of most active shares.

3. SoftBank. The Japanese tech investment conglomerate quietly amassed a $4B stake in Nvidia recently, making it the fourth-largest shareholder in the graphics chipmaker, according to Bloomberg.

The company disclosed the possible stake as it announced $93 billion of commitments to its technology investment arm, Vision Fund, but did not specify the size of the stake, Bloomberg wrote. Under U.S. SEC rules, a stake of 5% would require a regulatory disclosure but a holding of just 4.9% would be worth about $4 billion.

The holdings fit with SoftBank founder Masayoshi Son's plans to become the biggest investor in technology over the next decade, with bets on emerging trends such as artificial intelligence.

Two days later, "sources close to the matter" revealed that SoftBank was interested in further increasing its investment in the GPU design company. Although no specifics were given, the purported increase would happen over time as SoftBank begins to work closely with Nvidia.

4. Banks and funds reversing course. This is the real money that moves the markets, as evidenced by the commitment of Softbank and the market response since May 24. Bank analysts who provide research to Wall Street's largest mutual and hedge funds are due to capitulate their "over-valued" calls on NVDA and simply admit that it deserves a higher multiple. This will also bring more funds into the stock, which is part of what you see happening now.

Just like me, there are probably dozens of fund managers now saying what I thought they might on May 11 when I proposed...

But funds can buy and hold it here with no shame or regret even if it does go down to $110.

They can say "Now we get it. NVDA is the future of AI in the cloud, in factories, and on the road."

What Is a Tech Investor to Do?

So, am I buying NVDA up here in nose-bleed territory at 43X next year's consensus EPS estimate of $3.39? Nope. Can't do it.

But I'm waiting to buy it between 38X and 40X. And with such a chase going on these past few weeks, there are plenty of weak hands who will get flushed out on the first piece of bad news.

It will have to be something negative and slightly unexpected -- a product failure/recall, a production glitch, a lost customer, etc. And the stock could gap down $10 on the news.

But that's when you buy. Barring a bigger market correction -- and who knows when that will ever come again -- it may be your only shot to get back in NVDA.

I'm ready.

In other semiconductor news, Lam Research (LRCX) saw its price target raised to $170 from $155 at Deutsche Bank today. Analyst Sidney Ho said LRCX shares are positioned to continue outperforming in the second half of 2017 despite rallying 45% year-to-date. The WFE (wafer fabrication equipment) market is set to reach a record $40 billion in 2017 and could grow another 5% in 2018, the analyst contends. Lam remains his favorite name in Semicap Equipment.

Also, I'm eagerly waiting for Analog Devices (ADI - Free Report) to report their Q2 results Wednesday morning before the market opens. We bought this terrific tech sales and earnings grower with a sub-2.0 PEG ratio last month when concerns were brewing they might lose their Apple (AAPL) iPhone business. Shares are making new all-time highs today over $84 as I type.

Disclosure: I own shares of LRCX and ADI for the Zacks TAZR Trader.

Looking for Ideas with Even Greater Upside?

Most of Zacks’ investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information>>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Analog Devices, Inc. (ADI) - free report >>