Rally on! Here’s Why NVIDIA Corporation Stock Has Another 21% to Go

After a blow out FQ4:18 quarterly show from Nvidia, RBC Capital's Mitch Steves now spotlights 17% in return potential for the stock.


NVIDIA Corporation (NASDAQ:NVDA) investors are enjoying a 6% bounce in shares today after the chip giant delivered outclasses across the board: on Data Center, Gaming, gross margins, and guidance.

RBC Capital analyst Mitch Steves sings the praises of the chip giant that just “[checked] all the boxes” for the fourth quarter, all while doling out a colossal guidance beat for the first fiscal quarter of 2019.

In reaction, the analyst maintains an Outperform rating on NVDA stock while hiking the price target from $250 to $280, which implies a close to 21% upside from current levels. (To watch Steves’ track record, click here)

“Nvidia reported yet another blow our quarter, with Data Center and Gaming both exceeding Buyside numbers. Importantly, the guidance was materially ahead of expectations with most anticipating slight q/q declines and flattish margins VS. flat guide and expanding margins,” highlights Steves.

Naming off the best strengths of the print, the analyst points out: “Nvidia reported another solid quarter across the board with all major items meeting or exceeding expectations: 1) Data Center growth of 20% or more? (Check, 21.0%); 2) Gaming growth of 5-6% or more? (Check, 11.4%); 3) Gross margins in the 60s? (Check, 62.1%) and 4) Guidance of down 1-3% sequentially? (Check, flat at mid-point with margin expansion). Overall, all of the necessary items were ‘meet or exceed’ with the most impressive part being the guidance suggesting another material quarter of Data Center growth.” On back of the strength of the quarter, Nvidia’s EPS has been driven up over a $2.00 EPS run-rate one quarter early, cheers the analyst.

Steves soars on confidence for the semiconductor player on every point, except for one- only 3% gains in Nvidia’s Auto segment. However, this should be “fixed” once autonomous vehicles get revved up come next year or 2020. Therefore, the analyst wagers shareholders should offer this weaker segment a “pass” through the back half of 2019- as long as the segment continues to indicate stability.

For the fourth fiscal quarter of 2018, NVDA realized $2,911.0 million in revenue and $1.72 in EPS, beating out the Street’s $2.66 billion revenue projection and $1.32 non-GAAP EPS forecast. Nvidia meanwhile grew gross margins to 62.1% and operating margins to 41.3%. Revenue segment by segment saw Gaming shoot up 29% year-over-year to $1,739 million; Pro Visualization surged 12.9% year-over-year to $254 million; Data Center rocketed up 104.7% year-over-year to $606 million; leaving Auto growing a slight 3.1% year-over-year to $132 million.

“We continue to be impressed by the data center revenue and believe automotive will continue to grow in CY17 on the back of rising ASPs and new OEM wins,” underscores Steves.

For the first fiscal quarter of 2019, the NVDA team sets expectations for $2.90 billion in revenue against the Street’s $2.46 billion, gross margins between 62.5% and 63.5%, $645 million in non-GAAP operating expenses, and a roughly 11% to 13% tax rate. Steves calculates an estimate of $1.65 in EPS, based on the outlook’s midpoint, and notes the company’s revenue guide suggests 50% in revenue gains year-over-year.

Currently Nvidia boasts $8.13 per share in net cash, with the analyst betting on around 65% held overseas, poised to take advantage from repatriation. The only factor Nvidia deems a challenge to calculate is crypto currency revenue; yet, Steves quantifies $70 million for the last quarter and around $180 million for the current quarter.

TipRanks reveals a positive, yet cautious analyst consensus surveying the chip giant’s opportunity in the market. Based on 22 analysts polled in the last 3 months, 10 rate a Buy on Nvidia stock, 11 maintain a Hold, while 1 issues a Sell on the stock. Notably, the 12-month average price target of $230.95 suggests 6% in return potential for Nvidia shares- in other words, these analysts’ expectations reflect optimism.