Merrill Lynch analyst Vivek Arya is out with a research report on NVIDIA Corporation (NASDAQ:NVDA) after hosting a lunch meeting with the company’s head of accelerating computing, Ian Buck, as well as the Investor Relations (IR) team last week as part of an artificial intelligence (AI) bus tour hosted by Bank of America Merrill Lynch.
Following the meeting, Arya emerges with key takeaways and reiterates a Buy rating on NVDA with a price target of $80, which represents a nearly 20% increase from where the shares last closed.
First, Arya notes that though NVDA’s quarterly prospects have been on the “lumpy” side, he glimpses possibility for $5 to $10 billion in “addressable opportunity” by 2020 projected for the chip maker in deep learning coupled with supercomputing accelerators, from a current less than 10% market penetration.
Second, Arya sees NVDA’s confidence in sustaining its dominant market share, which he estimates as at above 75% currently, “as it’s the incumbent in parallel computing, with strong software assets and rapidly expanding (3x growth last two yrs) developer base and diversified global customer relationships.”
Third, the analyst likes NVDA’s “interesting new partnerships” with software giant SAP for enterprise AI, with robotics and automation giant FANUC for industrial robotics AI and with navigation provider TomTom for mapping systems for self-driving cars.
Fourth, Arya lauds NVDA’s “strong new pipeline of P4 accelerators for inference: Xavier for autos, while core gaming biz remains on a solid growth trajectory.”
Fifth, Arya contends that the availability of GPU-accelerated computing resources at Amazon Web Services (AWS) can “further expand” the market. Additionally, the analyst believes autonomous driving will join the list of “near-term growth drivers” gaming and deep learning to become a “third large growth engine.”
The analyst asserts, “While investors debated whether the deep-learning opportunity is $2-$3bn or $5-$10bn, we note that: 1) our current NVDA model only has $700-$800mn in annual data center sales in the next few years, so even the smaller TAM indicates substantial (2x-3x) upside potential; and 2) competition is limited as it’s very hard for any player (such as AMD, XLNX or others) to match NVDA’s software, R&D resources, or breadth/depth of customer relationships.”
“We remain encouraged of l-t growth prospects,” Arya concludes, deeming NVDA a “top pick.
As usual, we like “to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Vivek Arya is ranked #244 out of 4,183 analysts. Arya has a 58% success rate and garners 13.2% in his yearly returns. When recommending NVDA, Arya realizes 53.4% in average profits on the stock.
TipRanks analytics exhibit NVDA as a Buy. Based on 22 analysts polled in the last 3 months, 11 rate a Buy on NVDA, 9 maintain a Hold, while 2 issue a Sell. The consensus price target stands at $66.56.