Equity analysts at the Brokerage firm Cannacord weigh in on tech giant Apple Inc. (NASDAQ:AAPL) and graphics card giant NVIDIA Corporation (NASDAQ:NVDA), as both companies prove themselves as industry leaders. NVIDIA’s diverse product offering helps them to stay one step ahead of competitors, while Apple’s iPhone 6 flies off the shelves.
Analyst Michael Walkley of Canaccord reiterated a Buy rating on Apple, keeping his $160 price target, after conducting an analysis of Q3/C2015 results from leading OEMs to estimate Apple’s domination in the smartphone market. The analyst states that as of Q3/2015, Apple has 94% of profits from the smartphone market, its fourth consecutive quarter where its market share was above 90%. The company is the biggest player in the smartphone market despite recently reducing its channel inventory.
The analyst highlights that he anticipates high iPhone 6/6S replacement sales as the company has a large loyal customer base. Furthermore, the analyst states that the company’s sales of its older models of the iPhone in previous years, such as the iPhone 4 and the iPhone 5, will drive replacement sales for iPhone 6. Although fewer iPhone owners upgraded to their phones 2014 and 2015, analysts believe that the iPhone 6’s enhanced features and larger screens will prompt consumers to continue to purchase iPhones instead of competing products. Walkley notes that the replacement rate for iPhone slowed in 2012 and 2013 because upgrading to the iPhone 5, with a relatively smaller screen compared to the Android phone, was not as compelling to consumers as the iPhone 6 is today.
Although Samsung remains Apple’s largest competitor in the premium smartphone segment, Walkley notes that large portions of Android users are switching to Apple. Related, the analyst believes that because more people are upgrading and switching to iPhone, the company has a profitable “opportunity to sell additional products, services, and software to drive strong long-term sales and earnings growth,” such as the Apple Watch and Apple T.V. Going forward, Walkley believes the company will “represent 40% of the anticipated 1.6 billion global premium smartphone subscribers in C2017.” Although competitors are gaining market share with low price-points, this will limit their profitability, ensuring Apple maintains its industry leader status. The analyst provides hopeful sentiment for investors, stating that “these levels of annual iPhone sales… should drive very strong long-term sales, earnings, and cash flow generation for Apple to sustain or even increase its capital returns program.” He continues, “With Apple currently generating cash flows well above cash levels necessary for its business and strategic needs…we anticipate Apple will continue to generate and return significant amounts of cash to shareholders.”
Michael Walkey has rated Apple stock 81 times since 2010, with a 69% success rate and an average return of 25.3% per recommendation. Overall, Michael Walkley has a success rate of 61% recommending stocks, with an average return of 16% per recommendation.
According to TipRanks’ statistics, out of the 38 analysts who have rated AAPL in the last 3 months, 29 gave a Buy rating while 9 remain on the sidelines. The average 12-month price target for the stock is $148.85, marking a 30% upside from where shares last closed.
Cannacord analyst Matthew Ramsay upgraded shares of NVIDIA Corporation from a Hold to a Buy rating, while increasing the price target from $30 to $35, after hosting an investor meeting with EVP and GM of NVIDIA Hardware Brian Kelleher and CFO Colette Kress.
The analyst credits NVIDIAs transformation and diversification into various sectors, as well as revenue growth from the last quarter as the reason for his upgrade. Ramsay states, “Overall, we maintain our belief NVIDIA’s transformation from a PC-leveraged GPU supplier to a diverse visual-computing company is nearing completion with growth and overall earnings power now driven by the company’s four target growth markets of gaming, enterprise, HPC/cloud, and automotive now representing >85% of revenue.”
The analyst states that NVIDIA Corporation positioned itself well in the PC market, as the PC gaming market continues to grow in the United States, shifting away from gaming consoles and other platforms such as smartphones and tablets. Ramsay also “believe[s] the PC gaming market will continue to grow,” citing Y/Y growth for NVIDIA’s main GPU, GeForce. The analyst believes NVIDIA can sustain 10% growth in its GPU market for the next few years. Similarly, he states that releases of several new games, such as Call of Duty: Black Ops 3 and Star Wars Battlefront 3 will also drive this growth. Ramsay states, “NVIDIA’s strong hardware performance and differentiated gaming development and system tuning software libraries will prove deep competitive moats in the PC gaming market.”
Other drivers of growth and the analyst’s upgrade is NVIDIA’s position in virtual reality and simulation, as well as in cloud computing. Ramsay believes NVIDIA’s Quadro “will gradually generate increasing sales for NVIDIA as the software environments around GPU simulation/design mature,” specifically pointing to the product’s advanced technology in physically-based simulation for car manufacturers and designers. With an increased focus on Cloud computing in the IT market in general, the analyst believes the company’s first mover advantage in this market will only increase revenues for NVIDIA. Their GRID architecture, which enables users to share virtualized GPUs, has almost 100% of the market share in “virtualized desktop and cloud based gaming.” Although Ramsay states that maturation in this market will lead to increased spending by the company in the next few years, overall sales will “resume growth in in the mid-single digits.”
The analyst also points to NVIDIA’s position in the automotive market as one of the company’s key strengths. The company recently partnered with companies such as Tesla, Volkswagen, Honda, and BMW. Collectively, the company has shipped GPUs into over 4 million cars. Ramsay shares management’s perspective that their GPU technology is well positioned given automotive industry shifts to computing and a higher demand for GPU’s. He continues, “We believe NVIDIA’s early partnerships and leading work on real-time machine learning computing make the company well positioned for continued strong growth in this market.”
According to TipRanks’ statistics, out of the 12 analysts who have rated NVDA in the last 3 months, 6 gave a Buy rating while 6 remain on the sidelines. The average 12-month price target for NVDA is $30.42, marking a .07% upside from where shares last closed.