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Nvidia Corp. shares rallied Friday, as the company’s latest earnings report showed continued strength in its data-center business even as other areas have been impacted more heavily by the COVID-19 crisis.
Nvidia’s NVDA, +3.25% results “suggest another extremely strong data-center outlook,” wrote Bernstein analyst Stacy Rasgon, as the company “implicitly guided [segment revenues] somewhere in the ballpark of ~$1.3 billion” for the fiscal second quarter, excluding the recent Mellanox acquisition. That means the data-center business could be “seemingly up another 10-15% sequentially,” he wrote, as Nvidia’s management indicated it has good visibility into the July quarter.
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The data-center segment generated $1.14 billion in quarterly revenue for the April quarter, up from $634 million a year ago. This marked the first quarter in which the segment exceeded $1 billion in sales.
“While the shares remain expensive, there are frankly few true growth stories in semiconductors these days, and even fewer with Nvidia’s current execution,” Rasgon wrote. “And even if expensive we see no rationale to sell here, given product cycles on the way and a profile that continues its awakening toward a true accelerated computing company with every passing quarter.”
Rasgon rates the stock at outperform and raised his price target to $415 from $360.
The stock surged 1.8% in morning trading, to trade just shy of the May 20 record close of $358.80.
Cowen & Co. analyst Matthew Ramsay said that Nvidia reported “stellar results that live up to a stellar Ampere launch” and cleared a high bar. He said that early Ampere shipments helped contribute to the strong data-center results and was encouraged by management’s upbeat commentary on the demand landscape for this segment.
“In short, we believe the results and guidance demonstrate the magnitude of what we expect to be a sustainable data-center product cycle that should carry through the remainder of F2021 and F2022, further amplified by Mellanox,” wrote Ramsay, who has an outperform rating on the stock and raised his price target to $410 from $325.
Deutsche Bank’s Ross Seymore said that Nvidia’s report solidified its position as “THE premier large-cap growth story in the semiconductor sector with tailwinds across a wide array of markets.” Still, he remains on the sidelines on Nvidia’s stock, arguing that the “goodness” is already reflected in the share price.
Seymore has a hold rating on the stock and he bumped his price target to $315 from $300.
Instinet analyst David Wong said that while Nvidia’s gaming sales dropped on a sequential basis, they showed “more resilience to the global health and economic issues than we had expected.” Nvidia expects quarter-over-quarter growth in the segment for the July quarter.
The company continues to experience challenges in its automotive business, Wong highlighted, as it expects a 40% quarter-over-quarter decline in the coming quarter.
“Automotive sales of $155 million in the [most recent] quarter continued trending downwards and were at the lower end of the $155 million to $172 million range that Nvidia has reported for automotive sales in seven of the last eight quarters,” he said, while maintaining a reduce rating on the stock but upping his price target to $260 from $230.
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Of the 41 analysts tracked by FactSet who cover Nvidia’s stock, 32 have the equivalent of a buy rating, six have hold ratings, and three have sell ratings. The average price target listed is $363.42, about 3.5% above Thursday’s close.
Nvidia shares have added 21% over the past three months as the S&P 500 SPX, -0.22% has slipped 12%.
