Nvidia (NVDA): Make No Mistake About Volatility Concerns; Merrill Lynch Boosts Price Target Following Strong Q1 Results

Merrill Lynch's Vivek Arya now spotlights 33% in return potential for Nvidia shares- a stock opportunity this analyst sees as a standout pick for the sector.


NVIDIA Corporation (NASDAQ:NVDA) continues to be a best pick of the sector for Merrill Lynch analyst Vivek Arya, who is getting even more confident following last Thursday’s knockout punch: stellar first quarter earnings for 2018 and an enticing prospect to buy into any crypo volatility. Though other investors on the Street may fear a waning powerhouse in the chip giant’s cryptocurrency-mining segment, Arya doles out some wise words: “ignore segment noise” here, because this tech player is exhibiting “best-in-class growth + pipeline.”

Therefore, the analyst reiterates a Buy rating on NVDA stock while raising the price target from $300 to $340, which implies a just under 33% upside from current levels. (To watch Arya’s track record, click here)

This company served up exactly the kind of print “it needed to” and beyond, “writes Arya, who asserts: “some comments around seasonal patterns could be misinterpreted and create volatility in the stock which we would consider a particularly attractive buying opportunity. Specifically, Q1 gaming was above seasonal as NVDA partially refilled the channel to 5 weeks of inventory, which is still below normal 6-8 weeks though above low of 2-3 weeks prior. This is causing Q2 gaming outlook to be modestly below seasonal which we consider noise (i.e. the ‘Trees’). Meanwhile, the big drivers, aka the ‘Forest’ remain solid, with: (1) data center sales growing 71% to $701mn, beating the $700mn buyside expectation; (2) Gaming grew 68%, and is ahead of a 2H Volta/Turing ramp, and then late 2018/2019 excitement around ground-breaking ray tracing (RTX) technology for more lifelike gaming; and (3) Management remains laser focused on driving leverage with Q1 EBIT up 124% YoY, twice the pace of sales growth.”

For 2019, the analyst boosts his EPS expectations by 12% to $7.84 and for 2020 by 13% to $9.24, now angling for $1 more in long-term EPS power to $13.

As far as Arya is concerned, Nvidia’s sentiment and valuation hinge upon the company’s leadership in artificial intelligence- one that the analyst deems “unrivaled.” In the first quarter, sales vaulted to a whopping $701 million, now on a yearly run rate of $2.8 billion with penetration that is comparatively quite “low,” pointing to great possibility with a monster $50 billion total addressable market. DGX sales for the company’s first supercomputer “in-a-box” designed for AI development hit robust growth, spiraling to a yearly run rate of $300 to $00 million, which boosted Nvidia’s “record-high” gross margin close to 65%; an outperformance against the Street’s forecasts. Core PC-gaming business also proved to be a standout point for the company in its first quarter, with sales that the analyst projects reached 44% year-over-year and could well jump another 30% to 40% year-over-year in 2019. After all, between less challenging comps, improved supply and pricing, and good odds in the back half of the year for new product launches between Volta and Turing, the analyst is upbeat on Nvidia’s opportunity.

TipRanks exhibits Street-wide optimism circling this semiconductor leader’s market prospects. Out of 26 analysts polled in the last 3 months, 18 are bullish on NVDA stock, 8 remain sidelined. With a healthy return potential of nearly 12%, the stock’s consensus target price stands at $284.48.’

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