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Here's Why Nvidia (NVDA) Stock Is Gaining Again

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Shares of Nvidia (NVDA - Free Report) moved higher again on Monday, just one trading day after the stock witnessed an impressive 6.3% climb to close last week. This week, NVDA is off to hot start after another bullish analyst report highlighted the strength of its AI arsenal.

On Sunday, Bank of America Merrill Lynch’s Vivek Arya reiterated his “buy” and “top pick” ratings for Nvidia shares. The analyst also raised his price target for the stock to $210 from $185, which represents a 17% premium from Friday’s close.

“Our positive view on Nvidia is based on its underappreciated transformation from a traditional PC graphics chip vendor, into a supplier into high end gaming, enterprise graphics, cloud, accelerated computing and automotive markets,” Arya wrote in a note to clients. “Similar to other large successful tech industries, we expect the $30bn AI chip market to also feature one dominant supplier – we think NVDA.”

Arya’s $210 call is the second-highest price target on Nvidia out of more than 30 analysts covering the stock, according to FactSet.com. The highest is from Evercore’s C.J. Muse, who slapped a $250 price target on the stock last week and caused Friday’s major uptick (also read: Why Is Nvidia Stock Gaining Today?).

“Our sense is management believes that investors still severely underestimates the impact of AI and the size of the potential market,” Muse said.

Heading into the week, Nvidia shares were up more than 58% year-to-date, and the stock proceeded to open more than 3% higher on the back of Arya’s bullish note.

While the company’s continued dominance in the gaming and enterprise graphics industries is certainly a large part of this remarkable run, sentiment surrounding Nvidia’s ability to dominate the growing AI market has also fueled the stock’s gains.

The sense is that we’re only at the very beginning of what will become a massive consumer market for AI technology, and Nvidia has already established itself as the outright leader. The graphics chipmaker possesses both a powerful all-purpose AI-enabled processor and its CUDA software programming platform, which helps build out AI software.

Compared to competitive products like Alphabet’s (GOOGL - Free Report) Google AI chip, analysts believe that Nvidia’s processor has a larger potential customer base.

“Incumbency matters and Nvidia has a much wider AI/machine learning ecosystem that will be tough to match,” Arya said.

Nvidia is currently a Zacks Rank #1 (Strong Buy). For the full fiscal year, our consensus estimates are calling for the company to record earnings growth of 40% and sales growth of 29%. Again, these growth figures are currently being supported by the strength of Nvidia’s core businesses, but the market for AI will only continue to expand—perhaps in industries that investors haven’t even considered yet.

As Arya pointed out, Nvidia’s AI tech could become a major factor in the healthcare sector: “Separately we note NVDA's first mover advantage and growing influence in the multi trillion $ healthcare industry where AI/deep learning is being used for predictive analytics, image scanning and pathology assessments.”

As the power of AI continues to become more apparent, investors should expect these possible applications to become clearer, and when they do, Nvidia will be there to reap the rewards.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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