Analyst Ruben Roy Sidelined on NVIDIA Corporation (NVDA), But Bumps Up Price Target Following Datacenter Q3 Home Run

MKM notes while fiscal 2019 looks stronger after such a good Q3 from NVIDIA, valuation is not for the bulls.


NVIDIA Corporation (NASDAQ:NVDA) shares rose 5% on Friday after the chip giant’s Gaming segment proved strong in its fiscal third quarter showing and Datacenter took an exciting comeback step forward, thanks to an accelerating Volta ramp.

MKM analyst Ruben Roy notes that in addition to “seasonal strength” from Gaming and a stellar show from Datacenter, the fourth quarter guide likewise yielded a beat “well above current consensus estimates and with notably improving gross margin.”

Enticed by the company’s performance, but cautious on valuation, the analyst reiterates a Neutral rating on NVDA stock while lifting the fair value estimate from $120 to $186, which implies a close to 14% downside from where the shares last closed. (To watch Roy’s track record, click here)

In reaction to the strength of the print, the analyst has boosted his expectations for Datacenter come fiscal 2019, hiking his GAAP EPS forecast from $3.75 to $4.55.

However, “Even with the material uptick in our forecast, though, NVDA shares continue to trade at a significant premium to the semiconductor peer group at 45.1x versus the peer group average of 20.2x,” Roy explains, which leaves him on the sidelines even as he recognizes “strong recovery in data center” that helped to drive such a “solid” quarter for the chip giant.

Roy surmises with caution in the air even as he recognizes reason to be increasingly optimistic: “While we believe that NVDA’s positioning in multiple multi-billion dollar growth markets should warrant a premium to its peer group, we think that the current valuation reflects the company’s solid execution and medium-term growth prospects. With this in mind, we remain Neutral rated on NVDA shares.”

A great deal of cautious optimism circles this semiconductor stock, as according to TipRanks, based on 28 analysts polled in the last 3 months, 16 rate a Buy on Nvidia stock, 10 maintain a Hold, while 2 issue a Sell on the stock. The 12-month average price target stands at $209.56, marking a 3% downside from where the stock is currently trading.