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Nvidia (NVDA) Stock Still Worth $340, Says Merrill Lynch


Nvidia’s (NASDAQ:NVDA) honeymoon with Wall Street hit a bump on Friday morning, after the GPU giant provided disappointing Q3 guidance. Specifically, the GPU giant forecast its revenue to be within 2% of $3.25 billion, worse than prior Street estimates of $3.34 billion. As of this writing, Nvidia shares are falling nearly 4.5% to $246.2645.

Despite the guidance bummer, Merrill Lynch analyst Vivek Arya remains bullish on NVDA shares, reiterating a Buy rating and price target of $340, which implies an upside of 35% from current levels. (To watch Arya’s track record, click here)

Arya commented, “While the headline miss is likely to pressure the stock near term, we reiterate Buy since we believe Q3 contains very limited benefits from NVDA’s next gen Turing architecture, which is likely to show up starting in Q4 and into 2019. We believe Turing and its ray-tracing capabilities and 10x inferencing benefits will have a pervasive impact across segments, and stimulate new markets in pro visualization. Overall we tweak up FY19Ebut keep FY20E strong and steady at $15.7bn sales/$9.26 EPS (both +17% YoY, amongst fastest in semis).”

“We flag the lower QoQ GM outlook (-50bp vs street) and high levels of inventory (dollars + 37% QoQ). We ascribe the GM miss to normalization in mix (crypto cards in OEM and in GeForce carried very high margins and were high up in the stack). Higher inventory is likely due to new product ramps in gaming (Turing) and data center (HGX2, DGX – both system level sales that require substantially higher components). Finally we expect sales to Tesla to start rolling off in Q3 ($60-80mn annualized impact),” the analyst added.

Overall, the word on the Street rings largely bullish on this graphics card titan, backing Arya’s confident move, with TipRanks analytics demonstrating NVDA as a Buy. Out of 23 analysts polled in the last 3 months, 17 are bullish on Nvidia stock, while 6 remain sidelined. With a return potential of nearly 19%, the stock’s consensus target price stands at $293.55.